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Options Jive

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Butterfly Analysis

Options Jive

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 regular long butterfly spread, which is executed for a debit, carries positive theta and negative vega. Breaking the wing of the butterfly can raise the success rate and average P/L at the cost of increased max loss and fallen max profit, which is proven by our study on SPY.

Our study shows the differences between ATM Put Butterflies and Broken Wing Butterflies on SPY. It shows the success rate of Broken Wing Butterflies is about 40% higher than the regular put butterflies, and its average P/L is more than 140% higher. On the contrary, the Max loss of Broken Wing Butterflies is 50% higher than regular put butterflies and its max profit is 25% lower.

Tune in as Tom and Tony weigh these pros and cons!

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