Skip Strike Butterflies: Setup, Risks, and Uses. Disclaimer 2/21/2012

Transcription

1 Skip Strike Butterflies: Setup, Risks, and Uses Disclaimer Options involve risks and are not suitable for all investors. Prior to buying or selling options, an investor must receive a copy of Characteristics and Risks of Standardized Options, sent to you in previous communication. Additional copies may be obtained by calling TRADEKING at KING visiting or by downloading the file in the pop-up window on your screen. Webinars are provided for educational and informational purposes only. All investments involve risk, losses may exceed the principal invested, and the past performance of a security, industry, sector or financial product does not guarantee future results or returns. TradeKing provides self-directed investors with discount brokerage services, and does not make recommendations or offer investment, financial, legal or tax advice. The projections or other information generated by TradeKing's tools regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results. System response and access times may vary due to market conditions, system performance, and other factors. You alone are responsible for evaluating the merits and risks associated with the use of TradeKing's systems, services or products. While implied volatility represents the consensus of the marketplace as to the future level of stock price volatility, there is no guarantee that this forecast will be correct.

2 Disclaimer Multiple leg options strategies involve additional risks and multiple commissions, and may result in complex tax treatments. Please consult a tax advisor. The Greeks represent the consensus of the marketplace as to how the option will react to changes in certain variables associated with the pricing of an option contract. There is no guarantee that these forecasts will be correct. TradeKing selects and defines as All-Stars certain independent d market commentators who are recognized industry personalities and experienced traders. TradeKing All-Stars provide timely market commentary via the TradeKing All-Star Webinars. Each All-Star commentator's bio, related qualifications and disclosure as to their relationship with TradeKing can be found on the All-Star roster, available at The selection of All-Stars commentators is solely based on the quality and style of the content provided. TradeKing does not measure, endorse, or monitor the performance or correctness of any statement or recommendation made by independent All-Stars commentators. Supporting documentation for any claims made by Brian Overby will be supplied upon request by the author of the webinar, who is solely responsible for the views expressed here. Send a private message to All-Stars using the link below the profile image. Brian Overby does holds positions in the S&P 00 index (SPX). He does not hold any positions in any other securities mentioned in this web cast. (c) TradeKing, Member FINRA, SIPC. Skip Strike Butterflies : Setup, Risks, and Uses Examples 2

3 Standard Butterfly XYZ factitious 89.2 with 4 days to expiration Long Spread $6.2 Buy Sep 8 XYZ 8.9 Sell Sep 90 XYZ Short Spread $6.2 Sell Sep 90 XYZ Buy Sep 9 XYZ 2. Max Risk Long Spread: paid =.00 Short Spread: difference between strikes (), minus the received = 2.6 Standard Butterfly XYZ factitious 89.2 with 4 days to expiration Long Spread $6.2 Buy Sep 8 XYZ 8.9 Sell Sep 90 XYZ Short Spread $6.2 Sell Sep 90 XYZ Buy Sep 9 XYZ 2. Butterfly.6 Max Risk Long Spread: paid =.00 Short Spread: difference between strikes (), minus the received = 2.6 6

4 Standard Butterfly XYZ factitious 89.2 with 4 days to expiration Buy Sep 8 XYZ 8.9 Sell 2 Sep 90 XYZ Buy Sep 9 XYZ At Expiration: Max Risk =.6 Max Gain = -.6 = 4 4. Break-Evens = 8.6 and Butterfly Profit & Loss Graph 4. Buy Sep 8 Call Sell 2 Sep 90 Call Buy Sep 9 Call.6 Profit & Loss Stock Price at Expiration 8 4

5 Skip-Strike or Modified Butterfly XYZ factitious 89.2 with 4 days to expiration Buy 90 Call Sell 2 9 Call Buy 200 Call Sell 200 Call Buy 20 Call.68 Butterfly + Short Spread.99 Now just OTM B-Fly Buy 90 Call Sell 2 9 Call Buy 20 Call. Additional Risk Means Margin Requirement = $00 per b-fly and is the max risk of the trade. 9 Skip-Strike or Modified Butterfly XYZ factitious 89.2 with 4 days to expiration Buy Sep 90 XYZ Sell 2 Sep 9 XYZ Buy Sep 20 XYZ 0.9. At Expiration: Max Risk = - 0. = 4.69 Max Gain = + 0. =. Break-Even at Exp. =

6 Profit & Loss Graphs Profit & Loss Stock Price at Expiration Skip-Strike Profit & Loss Graph. Buy 90 Call Sell 2 9 Call Buy 20 Call. Profit & Loss Stock Price at Expiration

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