1. SMB’s Options Training Program Presents:
The Heart Friendly Butterfly

2. Disclaimer
1.       SMB TRAINING is NOT a Broker Dealer.  SMB TRAINING engages in trader education and training.  SMB TRAINING offers a number of products and services, both electronically (over the internet through Smbtraining.com) and in person.  Through Smbtraining.com, SMB TRAINING offers the “Virtual Trading Floor”, a community through which independent traders (subscribers), as well as T3 Trading Group, LLC traders, observe a virtual trading floor environment (as described below) for educational purposes.  SMB TRAINING also offers web-based, interactive training courses on demand.
2.       The seminars given by SMB TRAINING are for educational purposes only. This information neither is, nor should be construed, as an offer, or a solicitation of an offer, to buy or sell securities. You shall be fully responsible for any investment decisions you make, and such decisions will be based solely on your evaluation of your financial circumstances, investment objectives, risk tolerance, and liquidity needs.
3.       This material is being provided to you for educational purposes only. No information presented constitutes a recommendation by SMB TRAINING or its affiliates to buy, sell or hold any security, financial product or instrument discussed therein or to engage in any specific investment strategy. The content neither is, nor should be construed as, an offer, or a solicitation of an offer, to buy, sell, or hold any securities. You are fully responsible for any investment decisions you make. Such decisions should be based solely on your evaluation of your financial circumstances, investment objectives, risk tolerance and liquidity needs.
4.       SMB Training and SMB Capital Management, LLC are separate but affiliated companies.
5.       T3 Trading Group, LLC is a Registered SEC Broker-Dealer and Member of the CBOE Stock Exchange (CBSX  All trading conducted by contributors on Virtual Trading Floor is done through T3 Trading Group, LLC. 7. The risk of loss in trading securities, options, futures and forex can be substantial. Customers must consider all relevant risk factors, including their own personal financial situation, before trading. Options involve risk and are not suitable for all investors.
See the Options Disclosure Document: Characteristics and Risks of Standardized Options. Trading foreign exchange on margin carries a high level of risk, as well as its own unique risk factors. Please read the following risk disclosure before considering the trading of this product: Forex Risk Disclosure. Futures and forex accounts are not protected by the Securities Investor Protection Corporation (SIPC).
6. No Relevant Positions

3. Hypothetical Trades Disclaimer
Please note: Hypothetical computer simulated performance results are believed to be accurately presented. However, they are not guaranteed as to accuracy or completeness and are subject to change without any notice. Hypothetical or simulated performance results have certain inherent limitations. Unlike an actual performance record, simulated results do not represent actual trading. Since, also, the trades have not actually been executed; the results may have been under or over compensated for the impact, if any, of certain market factors such as liquidity, slippage and commissions. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any portfolio will, or is likely to achieve profits or losses similar to those shown. All investments and trades carry risks.”

4. PART 4
HEART FRIENDLY BUTTERFLY: FLAT AND TRENDING MARKETS AND SCALING OUT FOR INCREASED PROFITS

5. Flat and Trending Months
The examples in our previous sessions have been difficult months which have shown the full range of adjustments available to the heart friendly butterfly trader.
But many months, the market will either simply channel, or trend in one direction to a mild degree, requiring neither whipsaw, nor extreme market adjustments as were demonstrated earlier.
Often, in these types of months, target profit is hit at an early stage in the cycle in which case we may want to consider scaling out of the trade to “milk” it for more profits—while taking precautions to not risk too much of the target profit in the process.

6. January, 2010 Expiration

7. Upside and Downside Adjustment Points Established

8. Seven Days Later—Flat Market

9. No Adjustments Necessary for the First Full Week—a strong start

10. First Upside Adjustment

11. Flattens Deltas to the Upside

12. Market trending continues

13. But no further adjustment points hit

14. Happy New Year!

15. Target Profit is Reached

16. Scaling out of the trade
At this point, the trader needs to decide whether to attempt to squeeze more profit out of the trade.
This is a function of whether the upside potential is worth the downside risk of exposing some of the target profits to loss while trying to stretch the trade for further profit.
If we decide to move forward, we’ll risk only 25% of the target profit on a two standard deviation move, in a quest to improve our return by 25%.
We do this through a twice daily Two Standard Deviation analysis of the trade position—a very conservative posture. We don’t like giving up our target profits!

17. Can we prudently squeeze more profit from this trade?

18. Current trade not neutral enough

19. We begin to scale out of the trade

20. A two standard deviation move can now be tolerated.

21. Upside risk too high the next trading day at our 10:30 AM check

22. Upside Credit spreads reduced

23. Debit spread cuts upside risk

24. Profit slowly improving as we diligently stay on top of deltas

25. Upside at risk again

26. One more call credit spread bites the dust

27. Position now safer to the upside

28. 25% improvement from profit target with minimal risk taken

29. Scaling Out Tips
Sometimes it doesn’t work, but you give up, at most 25% of the profit target. You must be prepared for failures in this process.
Often, the first step will be to cut down the lot size of the entire trade and then start “trimming” the high risk side of the trade.
Another technique worth considering is pulling the wings in to the closest 25 point strike on both sides of the trade at the outside of the scaling out process.
ALWAYS CHECK THE OTHER SIDE OF THE TRADE THAT YOU ARE NOT “FIXING”, SOMETIMES A FIX ON ONE SIDE CREATES A PROBLEM ON THE OTHER. If that’s the case, it is almost always time to exit the trade and cease the scaling out process.

30. The Scaling Out Process
Scaling out of a trade is more of an art than a science.
The more often you practice it in live trading, the better you will become and the more creative will be your choices.
Done properly, scaling out can increase your annual returns and reduce your risk as you exit a trade.

31. CONCLUSION
The Heart Friendly Butterfly technique allows a butterfly trade to breathe while “jumping” on delta problems through an active adjustment procedure.
As a result, the trade is normally very much in control from a greeks standpoint and thus is a favored approach for traders seeking a reasonable annual return with much less stress than the typical positive theta options trade.
Please backtest this strategy yourself, so that you can get familiar with it and clarify any concept that does not seem entirely clear to you, through practical simulation. Only then should you live trade the strategy, with minimal capital until you have some experience under your belt.
Good luck and enjoy! Trading should be fun. It is for me .