How To Adjust a Butterfly
By Ernie Varitimos
November 11, 2021
0:00 / 19:23
How To Adjust a Butterfly

How you doing friends Ernie here? And this is the or zero dash D T E podcast. You can find it at Also broadcast live on YouTube. It is completely unscripted. I usually don't know what I'm going to talk about until a few minutes before I get on and I've managed to make it so far to 55 episodes.

Nice round number today is November 10th, Wednesday. And that means that it is a zero DTE day, Monday, Wednesday, and Friday. Those are the days that we treat. We trade a special strategy or strategies, methods, and a very specific continuing continuation. Can you talk continuous improvement process Kaizen?

You say that Kaizen, that means good change. And some people also translate that to continuous improvement, but that's what we do. We are masters of the asymmetric trade. What we do is we put on tiny little risk trades going after very, very large profit, excuse me,

asymmetric trades, small, small risk, large profit. Now every once in a while. We hit that large profit right on the net, the nail on the head, right on the head, bam. Right. Between the eyes, right between the eyes of the butterfly. As a segue into what this is all about in that. About our primary strategy or a strategy type.

And that's the butterfly trade butterfly that most people are aware of is an options trade that has two short strikes that have the same strike. And then your risk is capped on both the downside and the upside with one long strike on either side. And the butterfly is typically made up of either a. Or call.

So they're all puts are all calls too short puts the same strike and then a lower priced put that as long and an upper price put that is also long. And then the power of that strategy, or it is in fact, a premium collection strategy, which means that take an itchy ear today. Last week I had to niche-y nose.

I don't know if that means something, anybody that knows anything about itchy body parts? Let me know. Well, no, don't let me know. So

this is primarily a premium collection strategy, so we're really relying on those short puts or those short strikes and providing us with the ability to collect. That's what we do now. There are a number of different variety of butterflies that we can use. We can use a broken wing butterfly, which is not symmetric.

It is asymmetric. That's where one of the spreads. Now you can think of the long and the short on each side of the butterfly as a spread, one of the spreads is wider than the. And the reason why we would do this is to adjust our risk depending on where we are or where we think the likelihood that the market's going to go.

Now, most people use the butterfly as a market neutral trading device, but I'll tell you that market neutral is not the way to go simply isn't.