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Top Trades for Tue, 23 Jan 2018 11:31 – OIH

This will be our first trade for the Butterfly Portfolio!  

OIH is a nice, rangy play that's not likely to go up or down more than 20% but should give us good action in between so it's good for a neutral play where we sell puts and calls. 

Since we think it can move 10% up or down easily we should start small so let's just sell 10 of the March $30 calls for 0.90 ($900) and 10 of the March $29 puts for 0.95 ($950) and we'll just roll the loser.  

The July $26 puts are 0.80 and the $33 calls are 0.90 so those are our roll targets and our "safe" range.  

Of course the key to liking a butterfly is seeing how cheaply we can protect it and we only need to protect the outside of our roll, not the whole thing so we can buy:

  • Buy 15 OIH 2020 $23 puts for $1.60 ($2,400) 
  • Buy 15 OIH 2002 $36 calls for $2.10 ($3,150) 
  • Sell 10 OIH March $29 puts for 0.95 ($950)
  • Sell 10 OIH March $30 calls for 0.90 ($900) 

So we're into the trade for net $3,700 and we have 7 more quarters to sell $1,800 in premium = $12,600, so a lot of potential collections.   We EXPECT to lose on one side, of course and we expect to have to do a 1.5x or 2x roll on the loser so it's a slow grind in the initial set-ups but we can easily double down any leg if we have to and, if we don't have to, we can collect 2-3x in profits.  

The most complicated thing about a Butterfly trade is learning to be patient and letting it play out.  Generally, we only make adjustments once a month, during expiration week and, even then, only on contracts close to expiration or way off track.  Otherwise, this portfolio is the embodiment of Being the House and constantly selling premium.

If you are a Top Trade Member – be aware that we do not send out adjustment notes.  The idea is simply to keep selling short-term puts and calls against the long position and you can follow them in chat as a Trend Watcher or higher Membership.  


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