Hi Paul,
If I understand your question, you are asking about expiring options. If the options I sold for a credit expire worthless, then yes, I keep the credit received. The common joke is that every options trader wants and “Expire Now” button on his trading platform. Sell Options – Click Expire NOW!
Hope that helps.
Owen
Thanks for the great video, just need to check with you, once we have placed the BWB, usually how many days later then we place the embaded trade? Thanks.
Once the BWB order has been filled, you route a GTC to buy back the embedded. So, for example, you route a BWB on GLD for JUL – You sell the 116/114/110 @ .60 cents credit. Once that trade is filled, you route a GTC to buy the embedded 112/110 vertical for about .23 cents debit. As GLD moves higher and time decays away, the vertical will [hopefully] fill and you will be left with a symmetrical butterfly having pocketed the .37 cents and have a “lottery” ticket at the 114 strike for JUL.
There are two versions of BWB’s, the skip strike and unbalanced. Your approach is the skip strike. Is there an advantage to that versus the unbalanced? An unbalanced approach using your example would be a 116/114/112 with the contracts in a ratio of 1/3/2 respectively. My analysis shows for the same margin amount you can get more of a credit with an unbalanced. You can still buy back the 114/112 embedded vertical at a profit to create the symmetrical BF. Any thoughts?
Thanks for the informative series of videos on the BWB. It seems there is a paucity of information available in the available literature covering this particular options strategy. Are there any resources you can recommend to provide additional details on the BWB?
Thank you,
Eric
Chuck,
Sorry for the delay in getting back to you. Yes, you are absolutely correct, there are other methods beyond Skip Strike. I thought we would begin with the Skip Strike because it is the easiest to understand. You are 100% correct in that the unbalanced ratio you outline is limited risk and will produce similar results. As we move forward with this study, I intend to include these unbalanced spreads along with the adjustments. If you wish to share your knowledge now, by all means, jump in there and post away! I welcome your effort and comments. Thanks!
Owen
I would be glad to share my knowledge, but it’s mostly just the mechanics of setting up various BWB’s etc. Still searching for more info on what setups to look for (what strikes, puts, vs calls), how and when to adjust vs. get out with a small loss etc. For instance your no-risk, no margin BWB on GLD for March expiration is very compelling but picking the correct strikes to start with, how to adjust if it goes against you (as opposed to targeting the vertical to adjust into when it goes your way) and then how to add additional positions to the trade to get into a position similar to your GLD. I would love to see the resource recommendations you emailed to Eric.
Your video shows how to set up a BWB trade but doesn’t show how you got into the final position after multiple adjustments. Also you don’t mention what to do if the trade moves against you and you are unable to buy back the embedded vertical. Where did you learn the adjustment techniques you use in the BWB trades? I have been searching the web for this info (like Eric), but have not found much.
First I’ll address risk management. You must access risk before putting on this trade. If the trade moves against me, there is no adjustment, I have established risk parameters before going into the trade. Allow me to digress slightly; there are numerous “Educational firms” in operation today who will lead everyone to believe there are some super-secret trade management/adjustments. Adjustments exist, but they’re not nearly as sexy as they sound. Access risk before placing any trade and be prepared to lose that entire amount should the trade move against you.
To get into the final position, which is the symmetrical butterfly, you buy back the “embedded” vertical that was sold to finance the trade. BWBs contain a short vertical (that is not obvious) within the position. For example: You sell the 110/108/104 Put Spread. Write this down on a piece of paper and follow me, it’ll become obvious in just a minute.
You are really doing (2) different trades here.
Trade 1: Buy the 110/108/106 Butterfly.
Trade 2: Sell the 106/104 Vertical.
Now, notice that the 106 strikes overlap; you are buying the 106 strike in Trade 1 and selling the 106 strike in Trade 2. There is your embedded vertical. As the market moves and theta decays, that vertical will erode in price from +/-$1.00 down to +/-$.25 (or so) cents. Selling that vertical is what allows us to get these trades on for a credit amount.
There is not much (good) information available online. I’m not an expert, I’m just someone who has traded these for a while and have come to understand them better. Part of the reason for creating this site was to learn more through teaching. I believe that if you teach, you learn.
If that order expired at the value of 166 dollars how much cash would you actually net in your account? Thanks so much for the videos.
Hi Paul,
If I understand your question, you are asking about expiring options. If the options I sold for a credit expire worthless, then yes, I keep the credit received. The common joke is that every options trader wants and “Expire Now” button on his trading platform. Sell Options – Click Expire NOW!
Hope that helps.
Owen
Hi Owen,
Thanks for the great video, just need to check with you, once we have placed the BWB, usually how many days later then we place the embaded trade? Thanks.
Chin
Hi Chin,
Once the BWB order has been filled, you route a GTC to buy back the embedded. So, for example, you route a BWB on GLD for JUL – You sell the 116/114/110 @ .60 cents credit. Once that trade is filled, you route a GTC to buy the embedded 112/110 vertical for about .23 cents debit. As GLD moves higher and time decays away, the vertical will [hopefully] fill and you will be left with a symmetrical butterfly having pocketed the .37 cents and have a “lottery” ticket at the 114 strike for JUL.
Make it a Great Day!
Owen
Hi Owen,
Thanks for the quick response, this is one of the fantastic way to trade. Always like low risk trade ideas. Thanks again.
Regards,
Chin
Hi Owen,
There are two versions of BWB’s, the skip strike and unbalanced. Your approach is the skip strike. Is there an advantage to that versus the unbalanced? An unbalanced approach using your example would be a 116/114/112 with the contracts in a ratio of 1/3/2 respectively. My analysis shows for the same margin amount you can get more of a credit with an unbalanced. You can still buy back the 114/112 embedded vertical at a profit to create the symmetrical BF. Any thoughts?
Thanks,
Chuck
Thanks for the informative series of videos on the BWB. It seems there is a paucity of information available in the available literature covering this particular options strategy. Are there any resources you can recommend to provide additional details on the BWB?
Thank you,
Eric
Chuck,
Sorry for the delay in getting back to you. Yes, you are absolutely correct, there are other methods beyond Skip Strike. I thought we would begin with the Skip Strike because it is the easiest to understand. You are 100% correct in that the unbalanced ratio you outline is limited risk and will produce similar results. As we move forward with this study, I intend to include these unbalanced spreads along with the adjustments. If you wish to share your knowledge now, by all means, jump in there and post away! I welcome your effort and comments. Thanks!
Owen
Eric,
I just sent you an email.
I also took a look at your site, very nice, very impressive!
Make it a Great Day!
Owen
Thanks Owen,
I would be glad to share my knowledge, but it’s mostly just the mechanics of setting up various BWB’s etc. Still searching for more info on what setups to look for (what strikes, puts, vs calls), how and when to adjust vs. get out with a small loss etc. For instance your no-risk, no margin BWB on GLD for March expiration is very compelling but picking the correct strikes to start with, how to adjust if it goes against you (as opposed to targeting the vertical to adjust into when it goes your way) and then how to add additional positions to the trade to get into a position similar to your GLD. I would love to see the resource recommendations you emailed to Eric.
Thanks,
Chuck
Owen,
Your video shows how to set up a BWB trade but doesn’t show how you got into the final position after multiple adjustments. Also you don’t mention what to do if the trade moves against you and you are unable to buy back the embedded vertical. Where did you learn the adjustment techniques you use in the BWB trades? I have been searching the web for this info (like Eric), but have not found much.
Tim
Hi Tim,
First I’ll address risk management. You must access risk before putting on this trade. If the trade moves against me, there is no adjustment, I have established risk parameters before going into the trade. Allow me to digress slightly; there are numerous “Educational firms” in operation today who will lead everyone to believe there are some super-secret trade management/adjustments. Adjustments exist, but they’re not nearly as sexy as they sound. Access risk before placing any trade and be prepared to lose that entire amount should the trade move against you.
To get into the final position, which is the symmetrical butterfly, you buy back the “embedded” vertical that was sold to finance the trade. BWBs contain a short vertical (that is not obvious) within the position. For example: You sell the 110/108/104 Put Spread. Write this down on a piece of paper and follow me, it’ll become obvious in just a minute.
You are really doing (2) different trades here.
Trade 1: Buy the 110/108/106 Butterfly.
Trade 2: Sell the 106/104 Vertical.
Now, notice that the 106 strikes overlap; you are buying the 106 strike in Trade 1 and selling the 106 strike in Trade 2. There is your embedded vertical. As the market moves and theta decays, that vertical will erode in price from +/-$1.00 down to +/-$.25 (or so) cents. Selling that vertical is what allows us to get these trades on for a credit amount.
There is not much (good) information available online. I’m not an expert, I’m just someone who has traded these for a while and have come to understand them better. Part of the reason for creating this site was to learn more through teaching. I believe that if you teach, you learn.
Make it a Great Day!
Owen