Wednesday, September 03, 2008

The Butterfly Catcher

The Butterfly Catcher template was inspired by an article by Mike Parnos in the Dec 2007 SFO magazine called The Butterfly Net. You may have to log in to access the article. There's a number of clever ideas here and well worth your reading time. Subscriptions are free, and as I've noted before, the magazine's usually chock full of practical trading ideas. Since it's copyrighted material, I can't reprint any portion of the article here. There is also an error in Mike's posted worksheet that has been corrected in this template.
The concept is to use spreads (here debit spreads) to capture potentially big gains with a minimal fixed risk loss. The setup can be deployed both directionally and non-directionally, depending on your view of market momentum.
This is another component of the larger Kit of Parts system I mentioned yesterday, and does require the trader to manually enter option strike, price and quantity. There is probably option trading software available that optimizes these parameters and kicks out ready-to-execute orders on the trading platform. Being a troglodyte however, I'm not aware of them but, if you gentle readers, are aware of any, please post as a comment for others to consider.
If you'd like a copy of this EXCEL file, or yesterday's pivot EXCEL post, email with "butterfly" and/or "pivot" in the subject line. I'll be happy to send them out. My workload is fairly heavy these days, so if you don't get a response until this weekend, I'm just a little behind.

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