Earnings Butterfly -Dell trade

Dell reported earnings after the close yesterday (30th aug 07).

Dell was trading around 28.50

I had a butterfly trade entered few minutes before the close yesterday. Put Butterfly with strikes 30,27.5 and 25.

I was bidding .70 cents for the butterfly since afternoon and didn't get the fill. I increased to .80 cents, still no luck, just few minutes before the close, ask was .85 and i got 4 butters for .85 costing me $340.00

Exited the trade this morning for $410.00, profit of 70 bucks. Not a whole lot, but yield and time wise, I feel good. 20% on that trade within 24 hours.

 

Butterflies often work well in earnings situations where the premiums are inflated (I don't know what the Dell numbers looked like).

Crazy news inflated IV situations can also be good. I had some butterflies last week on CFC that cost a dime and worked out nicely. The problem is that they take a lot of effort to find.

Either way, congrats on a trade that made you happy!

 

How do you find them? Do you use a scanner?

 

Yes, I was looking at my optionvue scanner reports, volatality skew appeared in Dell options. Volume in Dell stock is so high, hard get 10-20% moves. I felt it is better for a butterfly. Worked well.

 

Just watch yourself on the part when you keep increasing your bid.

You made profit on this one so it may be hard to take in that considering setting your entry and waiting for the market to come to you can help limit losses.

Every time I have done that move, I have lost.

If you want in immediately, put up the ask and you will get your fill. I like to go in 1/2 or below spread and see if it "comes to me". If not, then I am prob wrong with my assessment.

(If that is of any help whatsoever)

BUT that is a cool trade!!! Well done.

 

I agree with increasing bid... I understand.

Thank you for your comment and suggestions.

 

Another way to increase you profit/limit your losses is to set up other possible equivalent combo orders. Sometimes higher/lower bids come in on the alternate combos than on the natural B/A's prices of the original combo. 5-15 cts more can make a big difference in a butterfly.

 

Thats a cool tip! can't believe I never though of that one.

 

Are you saying break up the butterfly trade into two separate vertical trades?

 

Yeppers, I am. When there are alternate combo possibilities for achieving the same position, you'd be surprised how many times a better price shows. When I do iron condors I find that the price improvement is often quite better by entering via strangles. Set price alerts and move on to other business. If one alert fires and the other side is stationary, grab it.