***Closed***SPY Unbalanced Butterfly initiated on 25 Mar 2010
25 Mar: Initiate Trade
SPY (Standard & Poors Dep Rec) Unbalanced Butterfly initiated on 25 March 2010
Trade Type: Bonus Trade
Trade Summary
25 Mar 2010
SPY at 118.06 (+1.21)
22 days to April Expiration
Action: Buy an unbalanced butterfly for April.
Buy to open 1 SPY Apr 118 Call
Sell to open 3 SPY Apr 120 Call
Buy to open 2 SPY Apr 122 Call
For 1 entry
For a net price of $0.00-0.05 Credit or better. [All TOS autotrade participants were filled at $0.00.]
Net margin required: $200 per entry
Analysis
***The target price has been changed to between $0.00 – $0.05 credit. The SPY moved as we’re writing our analysis.***
This is our second trade for April. This trade is bullish on the SPY. We’ll make the maximum possible profit if the SPY expires at our short option (120). However, if we were wrong and the SPY goes down instead of up,we lose nothing since we get into this trade with even money. Some of you luckier ones may even get in with a small credit. Your P&L chart should look something like the one below.
SPY unbalanced butterfly
Of course there must be risk if there is any chance to make money. The risk, as illustrated from the P&L chart, is for the SPY to rise by too much too quickly. So yes, we must still watch our risk.
Our breakeven point on expiration is about 121. As the current data suggests, we have a probability of about 75% to be profitable. In summary, we aren’t really risking too much with this trade. We’re in this for even money. If we’re right, we can make a maximum of $200 per entry. If we were wrong with our bullish stance and the SPY goes down, we lose only the commissions. We can only lose if the SPY is too bullish. The maximum possible loss is also $200. We’re risking $1 for $1 but with a very good probability of profitablility (75%).
We’re hoping to enter a few more trades for April. We’ll be in touch.
Good trading,
Gary
