SMB CAPITAL Broken Wing Butterfly

1
SMB CAPITALBroken Wing Butterfly

2
Disclaimer

• 1. SMB TRAINING is NOT a Broker Dealer.  SMB
  TRAINING engages in trader education and
  training.  SMB TRAINING offers a number of
  products and services, both electronically (over
  the internet through Smbtraining.com) and in
  person.  Through Smbtraining.com, SMB TRAINING
  offers the Virtual Trading Floor, a community
  through which independent traders (subscribers),
  as well as T3 Trading Group, LLC traders, observe
  a virtual trading floor environment (as described
  below) for educational purposes.  SMB TRAINING
  also offers web-based, interactive training
  courses on demand.
• 2. The seminars given by SMB TRAINING are for
  educational purposes only. This information
  neither is, nor should be construed, as an offer,
  or a solicitation of an offer, to buy or sell
  securities. You are fully responsible for any
  investment decisions you make, and such decisions
  will be based solely on your evaluation of your
  financial circumstances, investment objectives,
  risk tolerance, and liquidity needs.
• 3. This material is being provided to you for
  educational purposes only. No information
  presented constitutes a recommendation by SMB
  TRAINING or its affiliates to buy, sell or hold
  any security, financial product or instrument
  discussed therein or to engage in any specific
  investment strategy. The content neither is, nor
  should be construed as, an offer, or a
  solicitation of an offer, to buy, sell, or hold
  any securities. You are fully responsible for any
  investment decisions you make. Such decisions
  should be based solely on your evaluation of your
  financial circumstances, investment objectives,
  risk tolerance and liquidity needs.
• 4. SMB Training and SMB Capital Management, LLC
  are separate but affiliated companies.
• 5.  T3 Trading Group, LLC is a Registered SEC
  Broker-Dealer and Member of the CBOE Stock
  Exchange (CBSX www.CBOE.com). All trading
  conducted by contributors on Virtual Trading
  Floor is done through T3 Trading Group, LLC.6..
  Any information contained in this presentation is
  for educational purposes ONLY. Loehr Consulting,
  LLC, Greg Loehr, nor its subsidiaries nor any of
  their respective officers, employees,
  representatives, agents or independent
  contractors are, in such capacities, licensed
  financial advisors, registered investment
  advisors or registered broker dealers. Neither do
  they provide investment nor financial advice nor
  make investment recommendations, nor are they in
  the business of transacting trades. Nothing in
  this communication constitutes a solicitation,
  recommendation, promotion, endorsement or offer
  (buy or sell) by Loehr Consulting, LLC, or others
  described above, of any particular security,
  transaction or investment.
• 7. The risk of loss in trading securities,
  options, futures and forex can be substantial.
  Customers must consider all relevant risk
  factors, including their own personal financial
  situation, before trading. Options involve risk
  and are not suitable for all investors. See the
  Options Disclosure Document Characteristics and
  Risks of Standardized Options. Trading foreign
  exchange on margin carries a high level of risk,
  as well as its own unique risk factors. Please
  read the following risk disclosure before
  considering the trading of this product Forex
  Risk Disclosure. Futures and forex accounts are
  not protected by the Securities Investor
  Protection Corporation (SIPC).

3
Broken Wing Butterfly
Video Two Bullish Broken Wing Butterflies
4
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 WingsBullish Market
6
Expected Move Calculation
(implied volatility) (stock price) (vTrading
Days) 15.87
Equals /- Expected Move
7
Lets Find a Broken Wing Butterfly
1 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 TrendGOOG November 11, 2011
9
Select Option Expiry
10
Find Target

• Overhead resistance around 635
• High end of expected range 640
• (see option chain 16 ?)
• Next, set strikes for butterfly

11
635-640-650 calls (5)
Risk 4.55 Reward 5.45
12
630-640-655 calls (10)
0.05
Risk 5.05 Reward 4.95
13
625-640-660 calls (15)
0.80
14
630-640-655 (10 wide)
0.00
Risk 5.00 Reward 5.00
15
Analyze Loss Exits Risk Graph - 11/2
585
20 Loss 652
Todays loss exit 67 away.
16
Risk Graph 11/2 Looking atTwo Weeks Prior Expiry
Day before expiry
17
T14 days
18
T21 days
19
T28 days
20
T35 days
21
T41 days
Exit? What happens in a 1 SD move?
22
Example Two
23
Assess TrendSPY December 29, 2011
24
Select Option Expiry
25
Find Target

• Overhead resistance around 130-131
• High end of expected range 132
• (see option chain 16 ?)
• Next, set strikes for butterfly

26
131-132-134 calls (1)
(0.02)
But...only 1 wide.
27
130-132-135 calls (2)
0.16
Risk 2.16 Reward 1.84
28
Analyze Loss Exits Risk Graph - 12/29
126
20 Loss 132.30
Todays loss exit 6.30 away.
29
Risk Graph 12/29 Looking atTwo Weeks Prior Expiry
Day before expiry
20 Loss 132.30
30
T6 days
20 Loss 132.30
31
T12 days
20 Loss 132.30
32
T15 days
20 Loss 132.30
33
T21 days
20 Loss 132.30
34
T23 days
Exit? What happens in a 1 SD move?
35
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
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