Let’s say I haven’t bought back the embedded yet, but I want to establish a new BWB position farther up the strikes. In general, do you stick to the same formula of trying to get at least 60 or 65 cent credit for new positions? You wouldn’t even settle for 45 (or even 55) cents or less right? By the time these BWB spreads you want to put on don’t fit the “at least 65 cent” criteria, I think you probably start looking into the back months correct??

Also, for new positions, is it better to have the short strikes in close proximity relative to previously established BWBs? Or it doesn’t make a difference? I’m thinking the right way to do this is to not have the short strikes of position A too far away from short strikes of position B, and C, and so on. I’d like your insight on this.

Lastly, which commission structure do you use on TOS? Ex Rates 1/2? Standard? These 10 lots are squeezing a lot of juice out of my account commission wise, since I’m still on standard. When it gets close to expiration, don’t I have to sell back a lot of these transformed symmetrical Butterfly Spreads? I think this will eat more of my account value…which is why I’m thinking mabye I need to widen out the width of the spreads? Or you only sell the flys that have ITM status, and the let the others expire worthless right? with a fairly large account. I’m watching your “how to close out butterly video” but still a little confused…

Sorry for the long post and late reply, I will keep you posted on to any new additions I make on GLD. Right now, it’s 134.73 as of this writing. I’m tempted to add more bullish BWBs in december, but havent made any moves yet, since I’m still relatively new at this, but learning fast I think!

Thanks for your help too. I am trying to make a decent living trading options, and so far I have tons of headaches…..

Once you determine your risk tolerance, then consider the following:

I add to my Long Delta positions when the underlying has either pulled back to a level of support or a widely used moving average, such as the 10, 20 or 50ma. Institutions tend to add to their positions at these various levels. (assuming they are accumulating).

I have been hesitant to get longer deltas in GLD with this parabolic move to the upside. At this particular moment, shortly after 9am Central time, we are seeing a potentially bearish candle forming on the daily. It is possible that we will print a Bearish Engulfing pattern which will need to be confirmed with a move lower tomorrow. If confirmed, I will be looking for a level of recent support where I can add positive deltas. Most likely that will be around the $128 handle, just below the recent gap. Another place to add to Long positions might be off the 10ma.

You clearly understand risk management when you speak of adding Calendars to mitigate risk. One typical way to utilize Calendars is to buy them in a 1:3 ratio at your short strike(s). The trouble with doing this on BWBs is that you will spend your profit very quickly; the way I manage risk is on the front side. I allocate capital risk before routing the trade.

Bear in mind that these are only my opinions and my personal strategies given my personal trading plan. Everyone must develop their own trading plan that fits their own particular needs, goals, objectives, etc.

Hope that helps – Make it a Great Day!
Owen

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

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

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

I just sent you an email.

I also took a look at your site, very nice, very impressive!

Make it a Great Day!

Owen