There are several variations of the original butterfly spread strategy. One of them is the broken wing butterfly strategy. How does it differ from the original? Well, the primary strategy aimed at creating equal differences between middle strike prices, strikes above, and the ones below. In the broken wing butterfly option, the strike prices are not equal. In my course, I will explain two of these options: the original butterfly spread strategy and its variation of the broken wing.
However, while this course is beginner-friendly for people that have no clue about the butterfly strategies, you should have some knowledge about trades. For instance, you should have a basic understanding of calls, puts, credit spreads, and debit spreads.
The butterfly spread strategy
The original butterfly option strategy (also known as butterfly spread) offers a limited risk, and is developed to have a high probability of bringing profits. For beginners, this strategy is aimed at traders that want their trades to be less risky and more stable.
Since the strategy has limited risks, it can only earn you a limited amount of money as well. The strategy is explained with the use of four option contracts that have the same expiration month. However, they have different strike prices. They can all be either calls or puts, and the investor is supposed to sell the contracts at the middle strike price.
At the same time, the investor buys two call options from the lower and higher strike prices. Looks confusing? Yes, it is challenging to grasp the meaning and purpose of the butterfly option strategy, but in this course, I will present it for you with a visualization of this strategy.
How is the broken wing strategy different?
The broken wing butterfly strategy derives from the original butterfly spread strategy but differs in several areas. While the original strategy is balanced, the broken wing butterfly option strategy is not. The main difference is that investors skip one strike when creating their spread. This modification is done to avoid risks on one side. In some cases, investors opt to use this broken wing butterfly strategy due to several reasons that I am going to explain in my lessons.
What will you find in this course?
In this course on the broken wing butterfly, you will find an introduction to the original butterfly spreads. To grasp the variation of this strategy, you need to know the basic model as well. In the other lessons, I will take a look at the broken wing butterfly and its visual representation. Fact for the curious: the name butterfly was chosen because the visualization of this strategy resembles a butterfly. The broken wing name derives from the fact that the unbalanced model resembles a damaged wing of the butterfly.
For a more effective learning experience, I include some specific case studies. I analyze two trade examples: AAPL and NFLX. From these examples you will see how to trade in the real world.
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