Tom and Tony discuss everything you ever wanted to know about butterflies in just one segment. They explain how to setup butterflies and analyze a back-test to see if ATM Putare better than Broken Wing Butterflies.
A butterfly is executed for a debit and carries positiveand negative . By breaking the wing, we can raise the probability of success when implemented for a credit with no upside risk.STUDY
- ATM Put Butterflies to Broken Wing Butterflies
- S&P 500 from 2005 – Present
- Wings placed at +/- 4% of price
- at 25% debit paid or held to
The success and average P/L of the(BWB) were significantly greater than the Put butterfly. Although the BWB has a higher , the max profit is lower, and the max loss is more significant.