Broken Wing Butterflies

Discussion in 'Options' started by maninjapan, Oct 1, 2009.

  1. I was looking at some videos on youtube about the BRB and one of them mentioned locking in some profit once it had started moving to the profit side. (In the video the max loss incured to the downside on a call BRB was raised to a small profit once the underlying started moving up)
    What part of the BRB does one actually adjust to 'lock in' this profit? (without closing out the trade).
     
  2. just realized that should have been BWB, not BRB.....
     
  3. donnap

    donnap

    And was that a put BWB?
     
  4. erol

    erol

    Wouldn't you just buy back the cheaper vertical? ( the one that the underlying has moved away from)

    Personally I would close the position, unless I've misunderstood you.
     
  5. You have several legs in a position. The underlying moves. perhaps IV changes and time passes. Some of the options are worth more. Some are worth less.

    Closing the position locks in a profit.

    Adjusting a position can mean adding or subtracting some options to lock in a gain on a profitable leg (or legs).
    That changes the risk profile and leaves you open to further gain or loss.

    Short answer? Figure which leg has the profit and find an adjustment that books it.
     
  6. Guys, thanks for the replies. Obviously closing it books in the profit. But the guy in the video says by making the adjustment you can lock in the profit through an adjustment which allows you to lock in a small profit which protects you to the downside, but allows you to play for more profit to the upside.
    http://www.youtube.com/watch?v=8hUK1dNcouA
    heres the link if anyones interested. explains it better than I think I did.
     
  7. I can't answer the specifics of your question because there are different types of BWBs (see John Green's previous reply in another chain). But it's not rocket science on locking in profits via adjustments. If you have a multi-legged position that is bullish and it gets ahead, you can easily roll up a component to book some gains and reduce the downside should there be a reversal.
     
  8. I have a problem with a sales pitch from a fee based mentoring group that says:

    - BWB is one of the only strategies that I know of that can actually make a nice profit and can lock in the profit wth a little adjustment and can still make much more return (THE ONLY ONE??)

    - unique strategy and a very unique thing that you'll only see in a BWB (NO OTHER STRATEGY CAN HAVE LIMITED RISK WITH GOOD R/R RATIO ?)

    - can find these trades for as little as $10

    - very limited risk if the market should go down (you could lose a small investment)

    - if the market goes up like we're planning, like we're forecasting, you can actually have an excellent return... I've seen some up to 5,000 per cent

    - it's an excellent trade because you have such an excellent risk
    to reward ratio

    - you can actually capture your profit and possibly stay in the trade longer to make that 5,000 per cent

    AS LITTLE AS $10 RISK VERSUS POTENTIAL 5,000 PER CENT PROFIT ???

    " IF THE MARKET GOES UP LIKE WE'RE PLANNING" ???


    RUN, DON'T WALK AWAY FROM ANYONE PITCHING SUCH ROSY GET RICH SCENARIOS LIKE THIS
     
  9. byteme

    byteme

    It depends how you "dissect" the position. There are many ways of looking at it. You can view the broken wing butterfly as having other butterflies and verticals embedded in it (not just where you are long or short strikes)

    In other words, there are "virtual" positions within, that you can potentially take profit on whilst reducing the overall risk depending on where the underlying has gone.

    Charle Cottle's book covers one approach to dissecting options positions that may give you the necessary insight you are after.
     
  10. oh for sure! that and the fact its $690 for a 90 minute seminar or something crazy like that.

    about was just wondering if what he was talking about was standard play. Guess Ill just have to try a few of these out to see how they work.
    Thanks again though guys for the input learning something new everyday/
     
    #10     Oct 2, 2009