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