Monkey-Fly

Think outside the box... Most retail customers buy butterfly's dirt cheap hand over fist trying to hit it big on these low cost trades. The real question most should inquire about is why are butterfly's so inexpensive?? They have very low probabilities of success!! The standard butterfly is simply "taking a shot" and should be utilized and viewed this way. So what now for the butterfly?? Do we abandon our long shot altogether?? Not likely. The butterfly can be used quite readily but we just need to tweak it to create some positive theta decay while taking a shot. A butterfly for a credit?? Enter the Monkey-fly (and yes we could not think of a better name for it, but we are amused). Take the traditional butterfly, seemingly harmless and easy to define the total risk. Step it up a notch and let us examine selling a vertical spread to finance the purchase of our butterfly. Take a look at the example below with the SPY trading at $82.65 we have created a define risk Monkey-fly with an embedded $1.00 wide vertical spread. continued

by thinkorswim |  04/17/09  |  Stocks: SPY,