Butterfly Spread

Another of my many hobbies include trading Butterfly Spreads as well as Calendar Spreads. I do maybe one or two trades per month, I enjoy the intellectual challenge of trying to guess the market direction as well as the best way to profit. Most of my trades are for small amounts of money, maybe risking $300-500 dollars, hoping to make $300-500 on the upside. Anyway I entered a trade today and decided to post it here, that way if it goes bad, I guess I will have embarrassed myself in front of all my readers.

I'm self taught and have learned most of what I know about options through the school of hard knocks. Meaning I lost some money. The last few years I have done much better, but anyone who thinks this is a get rich quick scheme should think again. Start small, trade play money or only money you don't mind losing.

In general I use Calendar Spreads when I think market volatility is increasing, I use Butterfly Spreads when I think volatility is going to be flat or dropping. Most of the options I use are based on one of the ETF's based on one of the common stock indices. Below is a chart of DIA, which is an ETF based on the Dow Jones Industrials.


DIA - Daily Candlesticks: "

via StockCharts.com
"

The trade I made will be profitable if the DIA etf price is somewhere between 98-102 near the end of the month. In effect I expect this to be at least a short term bottom, but I also don't expect the market to go up much either. Here is my trade, all based on the options expiring the end of the June quarter(Quarterly). I'm listing this only for information not as a recommendation.

Short 10 DIA June 30 100 calls
Long   5 DIA June 30 103 calls
Long   5 DIA June 30  97  calls

Max money at risk $325
Max possible gain  $1163  ( I usually sell when I double my money so $375)
commissions making all these trades equal about $50

I've never publicly posted a trade before, curious to see if I jinxed myself.




Well I decided to close the spread for a small loss. The market is beginning to look as though its about to move up well above my profit zone. I always try and cut losses as soon as things go bad.