GLD – September Expiration – Call & Put Butterflies
September 14th, 2010
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by Owen · Filed Under: Broken Wing
We’ve been in the SEP GLD Butterflies for a while now; how do you get out of these trades? This is a very common question and I’ll do my best to provide an answer in this Live Trade Video.
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Do you have , or have you thought about, a subscriptions website. Your explanations are clear and concise and a novice like myself would appreciate “looking over your shoulder” more often. Anyway, the vids are great, just wish there were more of them.
Thanks
Hi,
You mention that the call side is with a profit of about $1,200 (you mention this at the 1 minute mark of the video ). but that is at the 121 level. Isn’t GLD trading at 124 in the video. The white line shows $1,100 profit. I know it is a small difference. But I just want to know if I am missing anything?
Also, Can I use a 1/3/2 ratio instead of 1/2/1? If so, the how are the strike prices set up? What about purchasing the embbeded?
Yosef,
When you buy back the embedded, you are locking in a profit. For example, if you initially sell the spread for .60 cents and then subsequently buy back the embedded for .27 cents, you have locked in a profit of .33 cents. This will be reflected on the risk graph.
Hey DRS,
Thanks for the kudos. I’ll put a sticky note on my monitor to create another video the next time GLD retraces to a lower pivot point.
Be sure to take a look at the post from Jan 30.
I’m coming to the conclusion that Iron Condors aren’t as low risk as I thought after a couple of close calls. Your Broken Wing Butterfly strategy looks good.
A couple of questions:
1. How long do you normally have to wait before your GTC (sell the embedded) trade fills?
2. What if it never fills, how does that affect the initial trade outcome?
3. If I understood you correctly, after the embedded GTC trade is filled there is no margin requirement. Does this means you can set up unlimited BWB trades?
Thanks,
Steve McA
Hi Steve,
Q: How long to wait before the GTC fills?
A: This varies based upon the market movement. If the market moves a significant amount to the upside, it may fill very quickly. For example, today is Feb 24th, 2011; the Broken Wings I sold in January are already locked in. Be sure to review the video of that particular trade here: http://tradersresearchinstitute.com/blog/gld-broken-wing-initial-entry-and-embedded-buyback-explained/
Q: What if the buyback of the embedded never fills?
A: These are Fixed Risk trades. If the market moves against you, you have a fixed risk and stand to lose that amount in each position you initiate. If the market moves slightly higher and the strikes of your trade are OTM, then the whole position can expire worthless and you keep the credit you were paid when the trade was filled.
Q: Can you setup additional trades?
A: YES. Definitely. Note that I did change your question slightly. I won’t go so far as to say you can set up unlimited trades, but as the Broken Wings are “mended,” your trade becomes a risk free trade that requires no margin. Over time, you will learn to build larger positions at multiple strike prices thereby creating a risk graph that umbrellas a greater number of strikes.
Question:
After placing the BWB do you inmediately place the embeded or you just wait to move in your favor?
Thanks.
Hi Miguel,
After the initial trade fills, route a GTC to buy back the embedded. Of course, this order will sit for days, weeks, or even months before the market moves enough to fill. By routing your orders, to buy back and lock in, right after your BWB fills, it also will give you a better sense of the overall trade when you view it on the Analyze Page (if you are using the Thinkorswim platform).
Hope that helps. Remember to always Control Risk First!
Make it a Great Day!
Owen
I have question about BWB.
1) how many days you go out in time to put on a trade?
2) what happens if the GTC order is not filled and price going pass your short strike.