Thursday, November 16th, 2017

quick question about stock options and exit strategies.?

I made an extraordinary choice with a butterfly, or expiration date. From now on, the stock market price has moved up and fell? with #? number I like? to do my m? maximum benefit. However, the share price options indicate that trade is not worth as much as I’m thinking it should be. ? Is this because I have to wait m? S decay time or am I reading something wrong?? ? Qu? I do?

Comments

3 Responses to “quick question about stock options and exit strategies.?”
  1. Jake Sulley says:

    Butterflies are not a high probability trade.

    And, I have never heard of anyone buying or selling a butterfly with that much time to expiration.

    Usually butterflies are used to manage other positions in your portfolio or for a quick hit and run trade. Check out the thinkorswim.com platform and play around with the trade analysis tab. I think you will see that trading butterflies with that much time to expiration won’t be worth your time or money.

  2. Hops Aficionado says:

    As Jake pointed out, you used too long of an expiration for a butterfly spread strategy. The reason why your options aren’t as valuable as you thought, even though the stock has moved into maximum profitability range, is because you have too much time left until expiration. The maximum returns you see quoted for the butterfly strategy are at, or near expiration. With so much time left, your options still have a large amount of extrinsic value (particularly Theta).

    My advice would be to exit this trade with whatever profit you have, and set a new butterfly that has between 2 and 6 weeks until expiration.

  3. James says:

    All options spreads make their full profit only during expiration when the extrinsic value on the short legs are completely decayed.

    This is why all spreaders use very short expirations. This is especially true for neutral strategies such as the condor and butterfly where you want the stock to stay relatively stagnant. You are only giving the stock more time and chance to move out of neutrality with such long expiration.

    What you can do is close it out for whatever profit there is and then next time, choose a shorter expiration.

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