1. SMB CAPITAL Broken Wing Butterfly

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3. Bullish Broken Wing Butterflies
Broken Wing Butterfly
Video Two:
Bullish Broken Wing Butterflies

4. Broken wings for stocks moving higher Looking at specific examples
Overview
Broken wings for stocks moving higher
Looking at specific examples
Deeper look at the risk graphs
Detailed risk management
“Knowing” when to get out

5. Broken Wings Bullish Market

6. Expected Move Calculation
(implied volatility) * (stock price) * (√Trading Days)
15.87
Equals:
+/- Expected Move

7. Let’s Find a Broken Wing Butterfly1
Assess trend - higher 2
Select option expiration 3
Find target - set as body of butterfly 4
Select strikes for butterfly 5
Make wide as possible 6
Analyze loss exits 7
Execute

8. Assess Trend GOOG November 11, 2011

9. Select Option Expiry

10. Overhead resistance around $635 High end of expected range $640
Find Target
Overhead resistance around $635
High end of expected range $640
(see option chain 16 ∆)
Next, set strikes for butterfly

11. calls ($5)
(0.45)
Risk = $4.55 Reward = $5.45

12. calls ($10)
$0.05
Risk = $5.05 Reward = $4.95

13. calls ($15)
$0.80

14. ($10 wide)
$0.00
Risk = $5.00 Reward = $5.00

15. Analyze Loss Exits Risk Graph - 11/2
$585
20% Loss
$652
$10 em, $67
Today’s loss exit $67 away.

16. Risk Graph 11/2 Looking at Two Weeks Prior Expiry
Day before expiry

17. T+14 days

18. T+21 days

19. T+28 days

20. T+35 days

21. T+41 days
Exit? What happens in
a 1 SD move?
one day move is $12

22. Example Two

23. Assess Trend SPY December 29, 2011

24. Select Option Expiry

25. Overhead resistance around $130-131 High end of expected range $132
Find Target
Overhead resistance around $
High end of expected range $132
(see option chain 16 ∆)
Next, set strikes for butterfly

26. calls ($1)
(0.02)
But...only $1 wide.**

27. calls ($2)
$0.16
$1.53 em
Risk = $2.16 Reward = $1.84

28. Analyze Loss Exits Risk Graph - 12/29
$126
$1.53 em 4 SD’s
20% Loss
$132.30
Today’s loss exit $6.30 away.

29. Risk Graph 12/29 Looking at Two Weeks Prior Expiry
Day before expiry
20% Loss
$132.30

30. T+6 days
20% Loss
$132.30

31. T+12 days
20% Loss
$132.30

32. T+15 days
20% Loss
$132.30

33. T+21 days
20% Loss
$132.30

34. T+23 days
Exit? What happens in
a 1 SD move?
one day move is $12

35. Bullish market, set target for stock move TA, expected move, or both
Review
Bullish market, set target for stock move
TA, expected move, or both
Select strikes; make as wide as possible for credit
Analyze loss exits
Use your skills to maximize: expected moves, greeks, reading the chain

36. Trading Bearish Broken Wing Butterflies Specific examples
Preview of Video 3
Trading Bearish Broken Wing Butterflies
Specific examples
Different considerations
Management rules
Deeper look at risk graphs
“Knowing” when to get out