Name: Broken Wing Butterfly w/ Calls
Setup: Buy (long) Strike A put and Sell (short) 2 Strike C puts and Buy (long) Strike D put
Bias: Slightly Bearish
Break-Even: Strike B – Credit received
Max Profit: Limited: Strike D – Strike C + Credit received
Max Loss: Limited: Strike A – Strike B – Credit received
Margin: Difference between prices of the short put spread
Time Decay: Time decay is your friend as you want all of your options to expire worthless except the put at Strike D
Implied Volatility: If the underlying is trading near or outside Strike A or Strike D you want implied volatility to increase. This will increase the value of your options but also suggest a large move to get your towards Strike C. If the underlying is trading near Strike C you want volatility to decrease. Strike B is your max profit area so a move outside of this range would be a bad thing.
Notes: None at this time
Featured in Trade Review: None at this time
