Market Measures

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Managing Big Dawg Butterflies

Market Measures

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

A Butterfly is a great what way to take advantage of high implied volatility (IV) while also looking for an underlying to approach a specific strike. When IV is high, butterflies will be cheaper than when IV is low. However, since we are looking for the underlying to close at a specific price, Butterflies are usually low probability strategies.

Today, Tom Sosnoff and Tony Battista take a look at the effect of widening the wings on a butterfly. By widening the wings, you increase your win area and have a higher probability of profit! The guys then take this idea one step further and look at the effect of managing these wide butterflies! The guys find out that by widening the wings and managing your winners is a great way to increase the probability of profit and win rate of this high IV strategy!

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