To Kill a Butterfly
By Ernie Varitimos
November 5, 2021
0:00 / 22:07
To Kill a Butterfly

3, 2, 1

okay. Let's bring in the mic. How you doing Mike? All right. Are you doing friends? Is there any, and this is the zero dash DTE podcast. Zero days to expiration. This is episode number 53 and today. We are going to talk about how to make money by killing butterflies. No. Is that what we're talking about? Wait a minute.

Is that what we talking about? Oh, no, we don't actually kill butterflies here, but what we do. We take the conventional wisdom, the conventional way, or the normal way that you would trade a strategy and we flip it on its head and in a way it's killing all conventional notions of how one would trade a butterfly.

And why don't we trade butterflies in the first place? For two reasons. One is that, it is feta positive and Vega negative. What the hell does that mean? Or any beta positive, big a negative. Let me put it in another way. It's a strategy that allows us to collect premium. Why do we correct collect premium?

We collect premium because we're trading the last day of expiration of options on the S and P. Now we're drilling down here and tilling giving you all the nitty gritty detail about why we kill butterflies. We trade the last day of expiration on the options on the S and P because that is the most opportune time to collect premium with a butterfly strategy, which is designed to collect premium.

That's what feta positive means. That means that as time goes on, if you just hang out somewhere near the strategy that benefits you, what does Vega negative mean? That means that if volatility is. Decreasing it's going negative. That also benefits you, but it is the vanc. A negative is like a helper. It's not a requirement because there is something else that we have in our, quiver, our satchel, our tool chest, our armory.

And that is time. Time, time is the. Indelible it is the unimpeachable. It is the one thing that does not change time. You can't stop it. You cannot stop the last hour or the last day, last hour, the last minute, the last second from coming and you cannot stop therefore premium from degrading the. Why is that important?

Because when you use a strategy, like the butterfly, you are collecting that premium that's because you have short strikes in there. Now short options, they collect premium, you get the premium as a seller of options. And so we like the butterfly because it concentrates that selling of premium on one.

And that actually has a whole bunch of other benefits that benefit us, or allow us to create very, forgiving, very creative strategies that make it really easy for us to collect asymmetric returns or put on strategies where the risk is extremely small, but the potential payout is very, very large in a very short amount of time.

So it's like we have Thor's hammer to crush the butterfly. We lay the butterfly out on a board. It can't go anywhere. We take Thor's hammer. And that's kinda like what, trading butterflies on the zero day to expiration of options on the S and P , it gives you that kind of power. Now, do you always.