Here are 4 butterfly scenarios that might play out on XLU, the Spyder utility sector ETF. The butterfly proposed for XLE earlier this month has played out nicely (so far) and as I expanded my search for other candidates, the XLU looked like a possibility with its essentially flat LR30 configuration for the past 2 .5 months. Not that this is any guarantee that the LR30 will continue to hold for the next 60 days, but it's something to at least consider when we examine potential risk/rewards for these trades. I've set this up to show 4 possibilities, 2 with 2 strike spreads and 2 with 3 strike spreads. . . you can see the implications below. Blogger apparently doesn't like the color red as it blurs the text with the red cells, so I'll alter that color for any future posts of the spreadsheets.
The problem (there's always a problem) with executing these trades is that XLU option volume is rather anemic, at best, with many strikes showing little or no volume on a day to day basis. I submit these trades as a single basket limit order and let the broker work it out. The hard way to do this is to trade each leg separately or to trade it as a spread and a straight buy. Commissions become too onerous and the stress can be frustrating as you wait for limit orders to execute in thinly traded options with 1 or another leg exposed and the stock price fluctuating.
HEY!. . .nobody every said this was easy.
Got some other ideas for stcoks or ETFs with XLU and XLE LR30 flat patterns, please mention them in the comments and I'll check em out.
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