Closed this Monday’s trade for a profit of 12%

Dan just closed his Monday SPX Double Calendar trade for a 12.40 Credit on Thursday morning at 8:35am Central Time. He closed his trade for a 12% profit.

Live Double Calendar today with 4 step Risk Management Plan

Dan put the below trade on  about an hour ago, live, in a webinar for Ally Invest.

Trade: With SPX around 2554 at about 11:40 central,  bought  1 Nov 10  2570 Call  and bought 1  Nov 10  2530 Put, and sold 1  Oct 27  2570 Call and sold 1  Oct 27  2530 Put. Total debit for this live trade,  11.05 . Selling Expiration that expires in 11 Days and buying the expiration that expires in 25 days.

Dan’s 4 Step Risk Management Plan for this trade:

Step 1– Set up:  Details are up above next to Trade.

Step 2– Risk Management: 8% Profit and 10% Max Loss on risk capital of $1105. Will have in order to take off for $11.90 Credit , a profit of about 8%. If spread I paid $11.05 for goes under $9.50 , I would get out of the trade .

Note: Beginner Traders would only deal with Step 1 and 2. Once you have done 5-6 Double Calendars and understand them, then I would deal with Step 3 and 4.

Step 3-  When to Adjust?  Upside: Short Call strike of 2570 . Downside: Short Put Strike plus 5 points or 2535.

Step 4- How to Adjust? Upside: Take off Put Calendar.  Downside:  Take off Call Calendar.

Dan Sheridan

Blog Update from Monday

Took off Mondays Live Butterfly today for a profit of around 5% in 3 Days! (You can reference the trade from Monday’s blog using the link below.)

Took off the Butterfly for less than my goal of 8-10 % because I am concerned with the narrow range in SPX last 5 trading days and am quick to get out of my short Vega trades a bit early when VIX is so low, today it is at 9.76! We bought the Butterfly  Monday for 12.15 Debit and sold it out today for  12.70 Credit . The Trade was in the Oct 27 expiration. The trade was B 1  2520 C ,  S 2  2550 C ,  B 1  2575 C , $12.15 Debit.

Dan Sheridan

NFLX Earnings trade

NFLX reports their quarterly earnings on Monday Oct 16th after the market closes. One interesting speculative play is to add a small out of the money call fly that can work if NFLX has an up move after the earnings release. Currently it looks like the expected move by the marketmakers is about $16. With NFLX trading around $196,  I would enter the following trade:

OCT 20th Expiration

Buy 1 200 call
Sell 2 210 calls
Buy 1 220 call

Enter as a butterfly spread for around $1.50 per spread

The trade is profitable on expiration from about $201.50 to $218.50. Close at whatever profit you can get on Tuesday Oct 17th.

Mark Fenton

Butterfly Live Trade for today and Risk Management Plan

Earlier today I did a Live Butterfly Trade in a webinar for Ally Invest. Below is my 4 Step Risk Management Plan.

Step 1: The Set up:  I did the Butterfly in SPX at about 11:25 am central today, Oct 9, with SPX around $2548. I bought 1   2520 Call,  Sold 2  2550 Calls, and bought 1  2575 Call. I paid $12.15 Debit or $1215 for the entire trade. My beginning position Greeks are: Deltas  -2   Theta 13  and Vega -107. Total Capital and Risk for 1 contract is $1220. The expiration is Oct 27 which is 18 days from expiration.  Why did I do this? For monthly Income. How does this trade make money?  The short options I sold , they decay quicker than the options I bought. ATM options decay faster than ITM or OTM options.

Step 2:  Profit Target and Max Loss:  8-10% Profit. If I make around 8% on this trade this week, that’s about $100. So if I paid $12.15 debit, my goal is to sell this out for around $13.15 Debit.  My Max Loss is 10-12% of the cost of the trade. So if I want to exit the trade at 10% loss, that would be about $120. So if the spread goes from $12.15 debit to around $10.95 debit I would enter a closing trade to sell out for 10.95 Credit.

Note: If beginner, don’t need to go to step 3. Can just take off trade for profit or loss from step 2. After you have done 10-15 of these Butterflies, you may consider using step 3 and step 4, a little more advanced risk management techniques.

Step 3:  When to Adjust?  2535 on downside and 2560 on the upside.

Step 4: How to Adjust? Upside- Buy 1  Oct 27  2570 Call and Sell 1 Oct 27  2575 Call.  Downside- Buy a Put in the Oct 27 Expiration that would reduce my long deltas close to zero.

Dan Sheridan

Are you a market bear? Here is a trade for you.

The butterfly option trading strategy has many different structures and uses. The time bomb butterfly involves buying an out of the money all call or all put butterfly in the direction you think an underlying asset is going to trade.

Uncertain Direction

Currently, there is a lot of uncertainty among traders as to which direction the market will head. This can be a good set up for the time bomb butterfly in the SPX. One example would be an all put butterfly placed in the Oct 6th expiration 31 days from now, that is centered at 2420.


While the width of the fly is up to the individual trader, using a 20 point wide wing could be structured as follows:

Buy 1 Oct 6th  2440 put
Sell 2 Oct 6th  2420 puts
Buy 1 Oct 6th  2400 put

This butterfly is currently trading at approximately 1.00 per contract. costing $100 for each 1/2/1 fly structure that is entered plus commission. If this butterfly at expiration is trading near 2420 this trade would net more than a 10 fold profit. It also has profitability from around 2440 to 2400.

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If you have a bearish sentiment over the next month for the SPX this is an interesting trade to consider. I like using the time bomb butterfly strategy more than I like vertical strategies because of the low cost and possible exponential reward.


Consider one of these the next time you want to trade predicting market direction.

I also wrote an article about the “time bomb butterfly” that was published in the  Modern Trader magazine which you can check out below.

Mark Fenton

Bearish SPX butterfly

With SPX near key support levels a bearish butterfly looks like an interesting speculative idea. The fly, being short, can increase the speed at which it can work for us if we are correct on the downward direction of SPX. I plan to take it off when I am  up or down 50% on p/l based on the trade cost.

With SPX trading around 2425:

Buy 2 Aug 25 exp. 2420 puts
Sell 4 Aug 25 exp. 2400 puts
Buy 2 Aug 25 exp. 2380 puts

Debit around 2.60

Max risk is the debit of the trade

Mark Fenton

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Looking for an entry to a VIX trade

Recently I blogged about buying VIX calls when the levels were near all time lows. I am looking again for an entry point to go long  VIX. Looking to buy VIX calls if  VIX level drops below 12.

Currently with the VIX trading at approximately 12.5 the Oct 18th expiration 14 calls are trading at 2.00. This means on expiration day (if you purchased that call now) if  VIX was above 16 you would be profitable.

VIX Spiking

If we could enter a little cheaper when the VIX was below 12 that would be even better. The VIX has been spiking to the 14/15 area about every 4 to 6 weeks over the past several months.

We are now heading into September and October which are traditionally volatile months so I expect the same should be happening again. If you purchase the call(s) look to sell them on a VIX price spike, which can be short lived, so you have to monitor this trade closely.

I have no set profit target, just looking to let the calls be in place to sell at a nice profit when volatility rises.

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Mark Fenton

Backspread live trade

In today’s Webinar for Ally Invest ( previously Trade King), which we do every Monday at 11 am central, the trade today was a Back spread or Back ratio trade.

With SPX at $2472 , I bought 2 Sep 1 expiration  2535 calls and sold 1 Sep 1 Expiration 2510 calls for $1.80 Credit. I like these type of trades when SPX is near all time highs and VIX is 11 or under.

Live Trade

This was a Live trade. I executed this trade by doing a credit spread and then buying the extra call. I like to keep the position deltas near zero or a little long at the onset to combat the Volatility risk of this long Vega trade on the upside.

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My position Greeks right now  with SPX at 2473 are: Deltas  -5.46   Theta    .61      Vega  -3. This is an OTM Call back spread  that starts out short Vega but picks up quite a bit of long Vega on the upside from the extra long call.


I would of rather started out position deltas near zero or a tinge long but this is OK for now. I hope to buy this spread in for a debit of around $1.00. This trade ties up about $2000 of capital in a Reg T account at most Brokerage houses.

If I buy in this trade for $1.00 debit, that would be about a  4% yield. This is a 32 Day trade and I would get out of this by Aug 8 to avoid time decay risk on this trade, especially if SPX moves up toward my long strike.


Dan Sheridan

The Best Stocks for Options Trading

Many people like to trade the indices for their tax favored status whenever they trade options. Indices such as SPX and RUT get the 60/40 tax favored status. Also there are many traders who like to trade stocks.

What Stocks Are the Best?

Often I am asked what stocks are the best for options trading? Whenever you begin to look for a stock to trade for options strategies  you need to look for a stock that is relatively peaceful, perhaps in a trend or  post earnings release.

The stock needs to have good option liquidity. What is a good liquidity  number?


I like to use a rule of thumb that for any strike that I’m going to use in my options trading strategy, there is 20 to 40 times the size of my position minimum in open interest in that strike. The more open interest that you have in a strike the better your fills will be as there are more people buying and selling at that level.

What to Avoid

Be careful to avoid stocks that are about to have a big product announcement, take over offers or earnings of course with your options trading unless you’re placing speculative  strategies on that event. Those events can all cause larger movement in the stock price.

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One last word of advice. Be careful not to be short in the money calls whenever a stock is paying a dividend. That will often be an event that will get you exercised early and you will be forced to pay the dividend.

Good Stocks

Some good stocks for options trading that I and my mentoring students regularly  employ include GOOG, AAPL, NFLX and AMZN to name a few. The best stocks to use will be the higher-priced, generally over $100 and many times many hundreds of dollars because those stocks generate larger option premiums due to their size.

These stocks can all be used for both directional and non-directional option trading strategies.


Mark Fenton