Expiration Flys
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Expiration Flys

Henry Gambell - February 22, 2016

Good afternoon everyone, this is Henry Gambell with SimplerOptions.com, and in today's free video, I wanted to talk a little bit about butterflies around monthly expiration.

The chart we're looking at right now is Goldman Sachs, and this tends to be a pretty good equity to work on, not so much pinning anymore, and I'm going to go into some details on this in the paid video, but, not saying that we're guaranteeing that it's going sit here and close at 150, but what type of trades might you be able to apply thinking that it will stay below 150? If you come back and look at Goldman Sachs, I think there's several ways you could have set this up.

I will show you the way I did it. I came back and was looking at the idea that this underlying has a pretty good habit of rallying. In this case, it was for four days, this case it was a bit longer, but the personality and the symmetry, in not only price, but also in time, was all looking very familiar as we came back up into this resistance around 150. So, symmetry in time, rough symmetry and price, not to mention that this underlying has also been doing a very good job of reverting back to the 21 EMA, just reversion to the mean, and then continuing along in the trend. A couple of different ways that you can position yourself and things that we did do. Showing it here in the Options tab from what we have done this week is a little skewed, because we scaled out of some of these and broke those apart.

The point that I would like to make here, and something that I continue to work with, showing it a little off balance here, but it's looking at things like these unbalanced butterflies. So I have three trades that I did. One was a butterfly on the put side, focused around 145. One was a short 150/152 call spread, and then the other, which was kind of broken apart here as part of your custom order was the unbalanced fly around 150.

I'm just comparing results at the end of the day. Which one of these trades made the most money? The unbalanced fly, I actually ended up having to give a little bit of a debit for, but I still really wanted to get the position. At the end of the day, we ended up making $1.12 off of the short vertical, but then you think, "Okay." You sold all those 150's. We've got the 155 here and the 145 here. The idea is that these expire worthless, which they did, and then we just collect the intrinsic value of the 145, so with Goldman Sachs closing here at 146/91, that means that are 145 calls made $1.91.

So, I continue to find that breaking those butterflies, or unbalancing them around expiration, really has a lot of great potential. One other place that we can look at some examples where we did that was here in Facebook.

Now, this wasn't the easiest trade in the world, because Facebook has been very well bid. It's been one of the better performers when the market has been weak, etc., so selling into the strength yesterday wasn't especially easy, but knowing the importance of these tree lines, and also kind of thinking the S&Ps are due for a pullback; that was another place where I looked at putting on this trade. What we did here--it's a little different after showing the closing--it was actually a really good position for us, but what I look to doing is setting up the exact same type of trade around these 105's, as Facebook rallied into the end of the day, and notice that this one was only $2 wide. That helps narrow down the risk. But as this rallied back into 104/60, that is picture perfect as you could possibly ask for.

Even if you're just doing a standard butterfly, what you want to try and do, because in this case we had the 107's the short 105's, and the long 103's. You're trying to get as close to 105 as you can without going over. That allows these to remain out of the money and ideally expire worthless. You maintain the intrinsic value from the 103's, and at the end of the day, that'd be worth $1.57. So, I was able to get in those for about a $0.15 credit, sell them at $1.57, so, not a bad way to trade expiration.

Those are two examples that I think you can kind of feed off of, and incorporate into the March expiration, when it rolls around. I hope you guys find it helpful. Have a great weekend, and I will see you at the next free video.