1. Butterfly Spread Trading

2. 2 Butterfly Spreads Key Points -Market Posture = Neutral (sideways trend) -Debit Spread -Shorter Term Trade (1 – 3 weeks before expiration) - Combines Two Spreads: -Bull Call Spread -Bear Call Spread

3. 3 Butterfly Spreads Profit/Loss Max Gain Max Loss + - -+ 4753454055 60 50

4. 4 Butterfly Spreads Resistance Support 100 90 95 ATM Bull Call Spread BCO 90 Strike @ 6.10 SCO 95 Strike @ 4.10 Bear Call Spread BCO 100 Strike @ 2.60 SCO 95 Strike @ 4.10

5. 5 Butterfly Spreads The Spread Constructed BCO 1 90 @ 6.10$610 SCO 2 95 @ 4.10$8.20 BCO 1 100 @ 2.60$2.60.50 debit Maximum Gain: Spread Between Lower Strike and Middle strike – Net Debit 95 – 90 -.50 = $4.50 Maximum Loss: Debit =.50 Break Even Points First Break Even Point: Lowest Strike + Net Debit 90 +.50 = $90.50 Second Break Even Point: Highest Strike – Net Debit 100 -.50 = $99.50

6. 6 Butterfly Spreads Resistance Support 100 90 95 ATM 90.50 99.50

7. 7 Butterfly Spreads Exiting the Position If your stock is: - Below Middle Strike, but Above Lowest Strike = Sell lower Strike that has Intrinsic Value, let other expire worthless - Is at the Middle Strike or slightly above = Sell lower Strike with intrinsic value, buy back the ATM’s, let the higher strike expire worthless - Below or above Your Wings = Lick your Wounds and poke yourself in the eye ONE SIDE HAS TO BE CLOSED OUT FOR A PROFIT