This Butterfly Strategy Aims to Remove Risk as Fast as Possible

[00:01] wrapped in bubble wrap with the magic money rainbow. At this point, this butterfly. There's no way that this position can lose. That was the genesis of the delicious and tasty burrito

[00:14] >> My guest has a passion for coming up with very creative names for his options strategies. Today, we are going to talk about his burrito butterfly, an options

[00:27] about his burrito butterfly, an options strategy that aims to reduce the risk as soon as possible. Welcome to Boomer Dan. >> Hey John, great to be back. >> Nice to have you back. Give us your

[00:39] 40-second version of what the burrito butterfly is and how it has worked for love butterflies and I hate them. I have a love-hate relationship with butterflies. I love the theta that comes out of them really quick, but the uh the

[00:52] I don't I don't like the narrow aspect of them and the risk that they can be. And so, what I tried to do with this particular strategy, the burrito butterfly, is I tried to kind of create a hybrid

[01:05] have the technical skill to get directional. So, I've always stayed at trader. Uh but I always wanted to. So, I was for these How can I create a hybrid that can be somewhat directional uh and that can

[01:22] I have with the the butterflies with the traditional butterflies where the uh the the it's such a narrow range, but still try to get some of that theta out of it. And that was the genesis of the delicious and tasty

[01:36] >> And why all these funny names of your strategies? uh I don't know. Burrito butterfly just kind of You know, at some point, I was just I started to refer to profits the profits that I would extract from the

[01:49] market or try to extract from the market as burritos, and it just kind of stuck from went downhill from there into all this this mayhem names.

[02:01] I do it, but I'm kind of I'm stuck with it. >> Tell us a little bit about yourself. >> So, I've been trading options uh since around 2006, about 20 years now. And I started off with pretty much the

[02:16] the theta option income style of trading. I never really did the calls and the puts and I've just kind of gone from there. At the time when I started I was working as a film editor, a film and video editor for the studios down in LA

[02:30] drives. It would take forever even though I'm only 30 minutes from the studios where I was working just because the traffic's so terrible here in LA. It down there. So, I would just on the way to work every day I would turn on Dan

[02:43] Sheridan and other option courses that I got and just turn that little beat-up Honda mine into a option education university and I just continued to trade from there and at some point I was able

[02:55] to phase out from doing the the 9:00 to 5:00 grind and into the trading options. >> And your burrito butterfly is a pretty >> And your burrito butterfly is a pretty elaborate strategy if I may uh say uh

[03:09] with a lot of add-ons and adjustments and so on. But, let's start with the basics first. What are you trying to achieve >> I think that I think that it can seem like it it's uh it's that there's a lot

[03:25] of stuff going on. It can be It can be simplified way down though. I always habit, I always have a tendency to try to all with a bunch of different adjustments and tweaks and it's not

[03:37] necessary as you'll see I'll point it out. It starts off with just a simple at and the the the goal at the beginning is to get somewhat directional

[03:49] by adding a a spread to one side of the butterfly. And I'll show you examples Uh but that's that's the main starting goal. But because we have the butterfly as kind of like the the pivot point there

[04:02] direction we think the market's going to go, it creates like a hybrid type of a trade. It's like a a semi-directional trade, but it's super soft. It's like a It's a kinder, gentler directional trade where it makes money maybe a little bit

[04:18] slower than a like a call would or even a credit spread or a debit spread, but return relatively quickly. Uh and on the other side, it it loses of time to react and you're not going to get slammed into a loss. And plus

[04:35] the middle that has that theta working for it or butterfly peak. It's sort of like the the top of that peak is like a magnet that's continually pulling up the profits. So, that kind of acts as a as a

[04:49] buffer as well. >> Before we go into the details of your strategy, just let us define the two basic trades that you already said that it is composed of. What is a butterfly and what is a debit spread?

[05:02] >> Yeah, so a butterfly is basically just two vertical spreads married together at You have uh on the on the one side say we do an at-the-money butterfly, you would have one vertical on one side and on the other side you'll have a

[05:16] vertical going the other way on the other side. And a debit spread is it's a vertical as well. It's where you buy one option at a particular strike and you sell another option at a at a further out strike.

[05:28] debit spreads and you can use them directionally as well. >> I want to tell you about something new here on Theta Profits. We are launching our first Theta training, a live course where you can

[05:42] learn about the one strategy in depth. The The first course is completely free and all about one of the most popular option strategies, the wheel. Paul teach it.

[05:57] >> You know, the wheel has been my primary options strategy for years. I've traded the strategy more than 10,000 times. In this four-part live course, I'll show you exactly how to run the wheel. And that is how to select stocks, how to

[06:11] sell cash-secured puts, manage assignments, sell covered calls, and handle adjustments along the way. If you've ever wanted to learn the wheel from someone who trades it every day, I can be your mentor, and I'd love to have

[06:26] you join us. >> The first of four sessions in the course will be on Tuesday, June 16th. Check the link on the screen or in the description below to learn more and to register. I hope to see you there.

[06:41] interview. So, let's get to your butterfly burrito. then? >> So, let's take a look at the butterfly

[06:53] right here. What I'm doing with these, I'm typically putting them at the money. And so, this is the SPX. And I've created uh a butterfly that's at the money. That butterfly is 15 points wide.

[07:09] And you can see down below we in the in the green uh the green part of the the screen there, the price I get. Usually, I put these on 15 points wide, and I go However, I've done them at I've done them at zero DTE, one DTE, seven DTEs,

[07:25] 14 DTEs. I've tried to go out further than that, but I found that they work the the best the best results I get are 14 days or under. But the the standard trade is about two to three days out. So, you can see once we get this

[07:39] butterfly on, I can get this butterfly pretty cheap. 75 cents for this for a 15 point wide butterfly. If I were to do this with a zero DTE, it would be uh the reasons why I like to go out a couple of days.

[07:53] And then, depending on direction, if I think the SPX is going up, I add the debit spread to the upside. I use the same long there as the butterfly.

[08:05] And that will be a five point spread on the SPX. So, this is an example of a bullish butterfly butterfly burrito, where I'm expecting price to go up. >> In both of these two trades, the max loss is what you have paid for them.

[08:21] >> Yeah, and the way that I figure out the the max loss is on Thinkorswim, I just look at the risk graph here and I move my mouse over to the lower leg there zero line. And when I when I put my on Thinkorswim,

[08:35] when I move my mouse over there, I can see exactly what that loss amount is. And typically, it's about three bucks to 350-ish. That's kind of the range I usually see. >> How do you determine your direction?

[08:47] >> That is a great question. Do you have any hints or tips? >> No, I have no clue. I have realized long time ago that I have absolutely no edge I'm curious. >> Yeah, I've I've come to the same

[09:02] conclusion. And so, I do have a chart set up that I call the the that that works fairly well, but still that I mean, it's not 100% all the time. So, I'll sometimes I'll use that, but with

[09:16] this trade, because it's so it's so slow to lose money, a lot of times, I'll just I'll just put the trade on and go bullish with it. I use this trade a lot for another trade that I do, like one of my my other main trades. And that trade

[09:31] is always leaning bearish. So, this acts as a perfect hedge for that. If I always put this on bullish, uh it's it's like the perfect hedge. If other trade will make money. So, that's kind of that's kind of like my quick

[09:44] fix. But, another thing with this is that you could with you could put this direction. You could just put the butterfly on itself. This is something I've done a lot. Just put the butterfly on and don't add a wing to begin with

[09:56] and just watch price and let price tell you which way to go. So, if we if we enter this trade right at the money and say price starts to edge up and hits or gets close or hits that outer wing on the on the upside of the butterfly,

[10:09] then I would go ahead and I would add that debit spread just assuming that we're going bullish. And it's it's so easy to manage these and uh manage potential losses if we were to go down. That's a that's a way to trade

[10:22] works really well. >> Dan, how will this trade profit as it is >> If the SPX goes the direction that I'm assuming it's going to go with this trade. Uh as price goes up, if you you can see

[10:37] the hard expiration line. That's where the trade will be on final on the final shows us where the profit and loss is at right now. So, as price moves up, you can see how that pink line is gently sloping up into that outer debit spread.

[10:53] So, as price moves up, it will it will gain value basically from that debit have going on. And so, let's say the version that I would I would recommend my son trade if he were

[11:05] just to start this is to once this trade is put on and he and he has picked a just waiting for price to tell him or he thinks he knows which which way it's going to go. Let's say he comes up with this setup, a bullish setup. I want him

[11:19] at what the risk is on the trade and let's just assume without me having to do math here. Let's just say that that lower line there is say 350 I would tell him that we want to try to capture

[11:33] a a 5 to 10% profit on that. So just quickly do the math on 350. So that's you're looking for a $35 gain to $70 gain. And that can happen very quickly.

[11:45] So as price moves up, you can gauge the the the profit and loss on that pink line. And then once it hits your profit target, whether it's 5%, 10%, or if you then you can either just take the trade off

[11:59] your profit that you made for the day. Or you can turn it into the butterfly burrito where we get a little bit fancier. >> So that was a bullish position. But what if you are bearish and want to do this

[12:16] that? >> Yeah, exact same thing. We we're just switch switch the whole thing around. We'll flop it. So here's an example of a bearish position. Again, I'll put a 15 point wide SPX butterfly at the money.

[12:31] point wide SPX butterfly at the money. And and then to go bearish, I'll put put debit spread at the same long of the main butterfly structure we were just looking at. This creates the identical

[12:44] bullish position we were looking at. It just flops it over now. So I'm expecting a down move. Same thing. As price moves down, it'll move into this put debit made. >> Now, if this trade go into profit, and

[13:00] you were mentioning about say say 5%, 10%, you could of course close the trade and be happy with that, but you could also add more positions to this. And that's what you are doing with this burrito butterfly. So explain this next

[13:16] step if you want to keep building out your burrito. So like we were just saying, this position here is a set up to be to be bearish. And let's say we were right on direction.

[13:28] So, price moves down here. I would say I would recommend the same the same either take the trade off or you can So, once the position has gotten into profit by a certain amount, again, you

[13:41] Or, if you want to turn it into more of a a delta neutral trade and try to build this thing up higher and higher, you can simply add the other side, the call debit spread at that point. Because

[13:54] when price moves down into this area and we're when we're getting into a profit, uh this spread here is getting cheaper and cheaper as we move down into the put side down here. And so, at some point we'll be able to buy this uh this call

[14:08] debit spread at a cheap enough price where we can get both of these wings, both of these debit spreads, to reside and float above the zero line.

[14:20] that again, this trade was the bearish setup. It we were correct, the market moved down, got into profit, and then at some point we were able to add this call side, the other side, the other debit spread, at a cheap enough price. So, now

[14:35] we have a position uh once this is on, so that no matter what happens, if SPX crashes all the way to zero, we'll still make a profit where where this is residing at. And I'm trying to I This probably like a $50 to $75 profit

[14:48] And the same thing up here. If if SPX were to rip up to the moon, we're above the zero line. So, no matter what, we can't get hurt. Plus, we have which is working for us, you know, kicking off theta.

[15:02] know how butterflies work, that the theta causes this pink line to bow. It's a magic money rainbow. So, we have a position that technically there's risk death here. But I after having traded these for so

[15:16] that is not something that I'm really concerned with until the last, say, 2 to 3 hours of the final day at expiration. This pink line, which is our current P&L for the trade, it won't droop down into that It won't even get close to drooping

[15:32] to the break-even line in this setup until the again, until the last couple hours on the final day. Instead, this pink line will stay flat or it will it will start to bow up. It'll create the money rainbow, which will give us

[15:45] additional profit opportunity if we're in this range beyond up on up on and above what we can get with this hard blue line up and down. >> When will you take this trade off? >> So, that's up to the trader. Personally,

[16:01] this thing on all the way till the final day. Cuz uh from this point forward, my my ultimate goal is that the the price of the SPX will come back and be in somewhere in this range. Because if

[16:13] it is, this pink line will be bowing up, and I'll be able to get much more money than showing now because we're residing in the area, and the closer we get to uh expiration, this pink line will bow up. As the pink line starts to try to become

[16:26] this this apex here, this butterfly. So, I'll just leave these on. I won't even mess with them because I know for sure I've locked in 5 to 10% all the way to zero, which is a great return in 2 or 3 days. Uh I've locked in 2 to 3% I mean,

[16:40] 5 to 10% from here all the way up, and I have additional profit potential where I could make, you know, many many multiples of the risk. So, I'll leave this on, personally, all the way till the final day.

[16:53] >> But, is this uh what we see now, the butterfly in the middle and the debit spread on each side, is this like the definition of your burrito butterfly? This is the end goal of your trade? >> Yes. Yeah, this is this is the end goal.

[17:09] it directionally, like we talked about earlier. If it moves up and you just that's great. So, that's that's a version of it. But, when when I talk about the floating butterfly or sometimes I I call it the I I refer to

[17:24] it as the {quote} {unquote} free butterfly. And it's not really free in these valleys. But, if you know how these trades work and that that that risk it doesn't really come into play at all until the very few last hours of the

[17:38] call it {quote} {unquote} the free butterfly because this butterfly have no risk in this trade that's to the rest of the duration of the trade until the very final last hours if the

[17:53] SPX is trading in this area. >> To make sure we understand this well, this opposite side and debit spread you put on when you had enough profit to be able to place it. So, so it when you can

[18:07] buy it for less than the profit you have gained so far on your initial position. >> Correct. And that's an important thing to bring up because a lot of times you can put both of these wings on at the very start of the trade and have

[18:22] and immediately have a break-even trade or I've even had a slight profit just with the pricing. So, so what I'm saying is a lot of times I'll put on a butterfly the first step and then I'll just price

[18:34] out both sides and sometimes I'm able to get wings on both sides at the immediately where the the the outer wings are at a break-even or slightly in the profit just because of the way the pricing is at the at the beginning.

[18:48] So, you don't necessarily have to wait for it to get into profit on one side. It really just has to do with the pricing on each of these spreads. And typically what I'll do what usually happens is that it'll move into profit

[19:00] on one side and you just watch the price of the spread on the other and you just add this leg uh when you're able to buy it buy it at a cheap enough price to float these these outer wings above the zero line.

[19:14] >> And your profit target is usually about how many percent? >> The same. 5 to 10%. So, for example, here is a trade that I did today, a live market trade with real money. And today I was I

[19:27] was bullish on the market, which turned out to be correct. So, at the time when earlier in the day, I put the at-the-money trade on, the the butterfly, the 15-point wide butterfly. I add the the debit spread. And at some

[19:39] point the market began to move up, and you can see here at this point when the we had a profit of about 65 bucks. And I'm trying to remember the risk And I'm trying to remember the risk exactly, but this was about a This was

[19:52] that point. And so, then I've just priced out the other side. Uh and I I waited until I was able to get that price, and then I just added the other leg to it. And so, now doing that, it's going to

[20:09] eat into the profit that we had before. We had 65 to 70 bucks in the trade just have just grabbed and closed the whole thing down if we wanted. But because I wanted to turn it into a a multi-day burrito butterfly trade, I was willing

[20:23] to accept a little bit less money locked in, 50 bucks up and down, which is still a great return. I think that's like 12% on the on the risk. And so, now I have this trade that's it's it's good to go till

[20:38] expiration day. No matter what, if the market crashes to zero, I'll make 12% on that risk. If it move it move from here all the way to the moon, I'll make 12%, and if it stays in this range over the next couple days, this pink line again

[20:50] rainbow, and I could I could take the trade off for a lot more than the 50 bucks that I have locked in right now. >> So, this example says it may be a little numbers. So, what did you pay for the

[21:05] uh, initial butterfly, the then the call debit spread, and then finally the the >> Yeah. So, you can see here I I bought the original butterfly for 75 cents, or 75 bucks.

[21:20] butterfly that's a couple days out. This expires on June 2nd. So, that's the standard price. And then I added the the debit spread, which cost 265 bucks. And so, that was the first step. And

[21:36] then as price moved up into profit, I reached a point where I was able to buy the other side, the put debit spread, for a dollar 10. floating burrito butterfly.

[21:49] >> So, then this uh, this situation we have now with the butterfly and the two debit spread, that is your burrito butterfly. Is that correct? >> Yeah. Yeah, that's the basic uh, vanilla

[22:02] >> And when you get to that point, you basically leave the uh, the trade on until the last day when it's when you consider when you will take it off depending on the market. >> Yeah. Yeah, that's how I do it.

[22:16] Uh, that can vary if someone wants if this starts to pink up if this pink line profit of say maybe 200 bucks and it's on day two, the day before expiration, at that point, you know, grabbing that opportunity. Typically, I just leave it

[22:30] more profit than the 50 bucks I have built in. >> Now then, this is assuming all this is assuming that you were correct on your direction. But uh, well, you said yourself that you're not very good at

[22:44] picking directions and then neither am neither am I. So, what if we happen to be wrong on the direction? What what do you do then? >> Right. So, that's the question I'm sure everyone has and that's like the biggest

[22:58] risk in this. What if you're wrong on direction? Then what? What are you going to do? So, the way that these these burrito butterflies or these this initial structure of the butterfly and the devil's throw on one side is built,

[23:12] it's super forgiving. It's like it's like a it's like a trade it's like a a directional trade that's that's that's wrapped in bubble wrap or in slow motion and it's super easy to deal with and there's no there's no panicking, there's

[23:26] no franticness, there's no getting getting blasted to the downside if you're wrong. So, what I typically will do if I'm wrong on direction is in this example for example in this case, let's say we put the bullish

[23:40] position on and the price moved against us. We were wrong and start and price starts to move down. So, the first thing as I was saying with these particular structures, just the way they're built, they lose money super super slowly. It's

[23:53] not like having a credit spread on or like a naked call. As price moves down, you can just see the the gentle slope of that pink line and how slowly it gets in the a loss if you're wrong. For example, in this

[24:06] particular situation, we're down 10 20 30 40 50 60 70 points and we're at a $75 loss. And which is about what our our profit target is on the other side. So, that's like a that's like a if we were if we

[24:20] reached this point I I would never wait for it to reach this point, but as you position is built, it's so slow to lose money that you have a lot of room to be wrong and still not be destroyed. So, the things I would do to to address

[24:35] that is first of all, like any strategy, just have a basic uncle point like a recommend it like a one-to-one at least to start with. So, if I'm looking to make 5 to 10% if the trade goes my way, I would look at a 5 to 10% loss to just

[24:52] get out of the trade, close the trade and call it a loser. That's the that's Uh that's just a an uncle point. Come loss. You get out of the trade. Another thing we can do, which is this is one of

[25:04] my favorites, is if the price moves against you, we can still add that other debit spread on on the side that's losing, which will stop the bleeding immediately and you create a flatline here. Now, if

[25:20] the price was moving against us and we put this on after price had start to we would wind up with a burrito butterfly where the outer legs here uh maybe they they they could be in a little bit in the profit still depending

[25:34] on price, or they maybe at break even, or they maybe a little bit under uh the break even. So, we would have a locked-in loss. So, in this case, if we decided to deal with the loss that way, we would have a a slight loss built in.

[25:49] a uh put or call option in the direction immediately flatten out the pink line. So, in this case, the price Let's say reached the side of the tent and we're and we're heading down. Obviously, I was

[26:04] wrong. I can just go out and I can buy a put option, same expiration, dollar a dollar or less, right around the dollar mark. I'll just buy a single put option, and that's going to be way out of the money, but you can see how

[26:19] that totally lifts that pink line up. So, now we're we we've we've stopped the bleeding and at least for the rest of today and maybe tomorrow with this particular put option. Uh the pink line won't droop or won't continue to go down

[26:32] into losses. It basically kind of like freezes the position where it's at, which allow me to also, but haven't you also added cost to the trades? Yes, you have. Uh you've

[26:46] added you've added a dollar or whatever the whatever the cost of that put is, but you can see that in this particular case, even with the ad with the addition of that, we still have our upper line above the zero line up here. So, it's

[26:59] come back if this trade were were to recover. It is costing us a buck, but remember that if price were to move around, we can always very likely sell that back out at some value. Maybe not the 95 bucks, but 50, maybe 50 bucks or

[27:13] so, or it'll save us on a move down, and we can just take our time in closing out So, that would be This would be a scenario where uh I'm not necessarily trade into a profitable position. I'm just trying to uh like stop the bleeding

[27:29] and allow myself a nice, relaxed, and stress-free atmosphere to get out of the possible. So, that's the solution that I would use if it moved against me. And this is one that is my probably my favorite way to

[27:42] do it. This is simply adding another 15-point-wide butterfly uh just overlap it slightly on the first And that just creates a wider tent. So, if price on the original butterfly if

[27:55] price starts to move down, and say we reach the outer edge of the butterfly, into a little bit of a loss, and obviously I was wrong on my initial direction, I would just buy another 15-point-wide butterfly.

[28:10] And you can overlap it as much or as little as you want. You could spread it out down here. I like to go out 20 points down because it creates this nice tent with a nice profit uh area here, this ledge, that's that still

[28:24] has a nice amount of profit in it. And you can get it for a price. This one still get it in in the general range of the price of the first one. And what smooths everything out. It continues to have that pink line gently sloped out,

[28:39] so we have a lot more room where it can move down, and we're still not in any But, what the other thing that I like about this one the most is that we're building out this bigger tent area. We're making the the

[28:52] profit tent wider. And which will give us more theta in the long run and it will also give us that magic money rainbow that I'm always looking for. It just creates a nice wider profit tent. So I'm not So

[29:04] trade, if this works out, I'm not stuck started with. I'm now expanding the tent. This is sort of like Think of it tent. This is sort of like Think of it as building a condor out piece by piece

[29:17] like in chunks as price dictates. As price rather than put on a condor a wide condor at the beginning not knowing which way it's going to go. Let price tell you where it's going to go and then slowly just add these chunks as

[29:30] slowly just add these chunks as necessary to prolong the the position too hard. >> And why do you call this a choo choo train adjustment? >> So it's I I look at these as as as as

[29:45] cars of a train. As the XPH is moving down, I'm adding cars to the to the this engine. And then if I need to as price moves down, I'm adding a new car to the train.

[29:58] And then if price continues to move down, I'll add a third one. As price continues to move down, I'll just continue to add these train cars to this train which is expanding this this profit tent

[30:10] And again, the the wider we can get this tent area the the more profit potential we've built up in a nice range wider range. where that money rainbow is going to pop up if on any any type of a pullback.

[30:25] >> But I have one question. What does adding all these butterflies do to the risk of the trade? >> So each one will will add risk by the amount of the butterfly. So in this last one it was So the first butterfly we did

[30:37] was 75 bucks. The second one was about uh like it's a 100. Uh this one was 50. So, each butterfly we add is going to add risk to the entire structure.

[30:49] But, I consider this not a lot of risk to add, uh especially uh in relationship to what I'm gaining from that 50 bucks. I'm gaining a big profit to a big condor structure, basically, that can make up

[31:03] to 500 at these at these middle levels and up towards 1,000 at the at the tops. So, I'm building out a nice wide tent on any sort of a pullback. And I'm still I still will be able to to uh do the same

[31:16] add the put debit spread at some point and and cap off the risk of the downside. Now, again, because we've added that additional risk with each of the butterflies, once I do that, the the wings will be

[31:31] most likely below the zero line, but not that much. And it's and it's very recoverable with a with a technique or a method I call the clawback, which is this. So, the clawback >> What have you done here?

[31:44] We're underwater. Uh we've built out the tent here, which is nice money rainbow forming. This is all good stuff for us, but our wings are underwater. So, how can I bring these wings back towards the breakeven line or above it? So, what

[31:58] breakeven line or above it? So, what I've done here is I go to the XSP. The XSP is a smaller index It's It's basically the SPX at 1/10 the size, and settled. Everything's the same, and it's and it's priced It's priced similarly,

[32:13] just 1/10 the size. So, it's a way for me to get really granular and fine-tune these SPX positions. So, what I do in this particular case, I what I do in this particular case, I just came in here and I bought three

[32:26] additional put debit spreads right here. And I bought three additional call debit spreads on the upside. I just overlaid spreads on the upside. I just overlaid those XSPs on the SPX and that raised up

[32:39] those wings. So now the wings are above profit all the way to the all the way to the zero and all the way to the top. And to it's going to nick some profit potential out of the tent, but as you

[32:53] can see, we still have a nice profit uh potential in our bigger tent here. It's This is like maybe I'm trying to read like say 300 bucks on those valleys there. That's above water. That's a profit. And at the tips, we have up to

[33:07] those like 600. So it costs a little bit, but it it it it immediately puts us back into our original goal, which is to have a butterfly burrito trade that has no risk to the downside. You can only make profit.

[33:22] to 10% profit all the way down after doing that adjustment. And the potential above the zero line all the way up. And we have this middle tent, and has a lot more data working for us in a wider range where we can make money

[33:37] if the SPX not only lands in that area, but even if it just moves through there, it'll it'll it'll it'll increase in value where we can take the whole thing off or or we can just let it go to the final day like I do the the first one

[33:50] it like that. >> But then, you still have those two dips in your profit curve, which see it. >> Right.

[34:05] that keep option traders up at night, or at least me. I'm always worried about Uh but the first thing to remember is that because the way this this is constructed, uh throughout the duration of the trade, this is a two to three-day

[34:18] And just from experience, I've just seen this a million times. That pink line will not fall into that until the last couple that's something to keep in mind. You I mean, you definitely don't want that to

[34:31] happen. You want to be watchful. But for the first days before expiration, this to bow up. So, I'm not worried about it at that point. But, there are a way there But, there is a way to eliminate those.

[34:45] So, first let's attack this one. How can I get rid of that valley of death there? all that is is essentially that's that that is a a short butterfly right there. I mean, I know we built it with a

[34:58] butterfly here and a debit spread. But if you look at this this this area here, that is a short butterfly. So, let's just fill in that hole by buying a butterfly at the exact same strikes. So, we'll just uh configure a

[35:12] strikes. So, we'll just uh configure a butterfly that has uh the longs middle. And we'll buy a butterfly there. And that will immediately pop that up and eliminate that risk completely.

[35:27] So, now with that one gone, we have our floating blue line still above the zero have to worry about. So, we do the same thing with the other side. If we want I mean, this is all depending on if those are bothering you.

[35:40] A lot of times uh if you wait till the last day, price may not be anywhere way down here or up here. And you have to worry about it. But if it if it's them, you can just do what we just did. We can just fill those holes in. So, in

[35:53] I want to eliminate this valley of death. I'll just buy a butterfly right and it'll eliminate that. So, now we're left with just the butterfly, the original butterfly. The valleys of death are gone

[36:08] and the structure is still floating all the way to zero and all the way up. And trade at this point. At this point, this really is uh a a risk-free floating butterfly. There's no way that this position can

[36:20] because we're we're completely floating above the zero line and it's SPX. It's settled it's cash settled. There's no assignment. So, this is a this is like a this point forward. >> How often do you end like this with

[36:35] >> Yeah, personally if I I was trading this, I I may not always Somebody new to trading this, I would I would recommend being more ahead and and eliminate it so you don't have to worry about it. Here's what'll

[36:49] nothing at all and you have these valleys of death, throughout the first floating and there'll be really no problem. Uh like say about halfway through the day

[37:02] on the final day, this pink line will start to droop into these areas because day, the pink line is going to turn into that blue line. So, you want to address that before that droop starts to happen.

[37:16] And worst-case scenario, if you forget all about it and price ends up right there at the final minute of the day on Friday, going to be exposed to that risk, which you don't want to have happen. So,

[37:28] of trades that have these valleys of death, I would I would recommend going ahead and eliminating them, just fixing it like I just described. The way that I personally trade them, I just I wait. I wait until the final day and see where

[37:41] price is. If price is anywhere around those, then I'll address that and do that. If it's not, I won't. >> You have shown that this is on SPX, but do you use other underlines for this trade?

[37:55] I think you could. Um I would just be Make sure you understand assignment risk. Like if you were to use these on a stock, where maybe some of the options could be in the money and you might wind up with

[38:09] next day, which would not be great. Or would depending on what you're what you But, I would I would stick to the indexes that are cash-settled. Uh and personally, I just stick to everything I do is on the SPX. However,

[38:22] you can do this the whole the whole butterfly burrito with the the XSP at super small. You could you could start there and have a super minimal risk until you really figure it out and learn it and then go up to the SPX.

[38:35] it and then go up to the SPX. >> But the XSP is a bit less liquid than >> That's correct. Although it's getting better. I'm surprised like a year ago it was pretty difficult I'm not difficult it was it was challenging to get fills.

[38:48] Right now it's not so challenging. Uh it's not as liquid as the SPX but given given some time and it's there's a lot of uh you can get really good fills with them. >> And personally I love using XSP because

[39:00] to test out new strategies I do my regular zero DTE trading on SPX and I don't want to mess up the mess up the positions and remember which strike belong to which strategy so I can use XSP for testing new strategies and risk

[39:16] much less if it doesn't go well. >> Yeah. I Yeah, I do the same thing. >> Let's move to the risk. What is the worst that can happen with this way of trading then? >> Generally this trade is really pretty

[39:29] as long as you understand what's going on. I consider this to be like a slow motion bubble wrapped trade either directionally if you start directionally or you can quickly flip it into a delta neutral trade like I showed.

[39:43] Uh and once it's into a delta neutral trade it's super safe. The real risk directional part. And the worst thing that could happen I guess with that is that price

[39:55] moves against your direction that you picked. It goes the other way and you don't do anything about it. You you smoke the hopium as the somebody said and you just sit there and wait and hope that it's going to stop and come back.

[40:07] Uh with these I would I would recommend jumping on trades that are moving against you fast quicker as quickly as possible because even if you use that turn it into a butter a burrito butterfly while it's still underwater,

[40:23] butterfly while it's still underwater, it's it's very simple to claw that back up towards that break-even line using that XSP trick where we're we're of we're fine-tuning it. We're getting really granular and raising that thing

[40:36] really granular and raising that thing back up. And so the quicker you act and the less of a loss that you lock in with that with that part of the trade where you turn it into a floating butterfly, even if it's underwater, if there's not

[40:48] a lot of loss sitting in there, you can you can fix it or at least improve it significantly by doing that clawback method where we start to raise it back >> I would like to ask you to place this on a risk profile scale where one is very

[41:02] a risk profile scale where one is very low risk and 10 is very high risk. Where would you put this strategy? >> I would put this at probably a three or four, I think. Uh for for someone brand new until they

[41:15] really kind of understand it and get it dialed in, maybe five. But like I said, the way that this is built, uh it reacts so slowly. It's just like motion. And again, as long as you don't just uh

[41:29] not look at it, walk away and forget about it, or just uh hope that it's going to come back. If you act quickly, you can flatten and very quickly. >> What have been your results trading this

[41:43] >> So my results have been really good with this. The thing to keep in mind is that the way that I trade this, uh like what I just went through here is what I would consider the the beginner newbie introduction version of it. Just

[41:56] the simplest form of it. And the way that I trade these are more advanced. I'm doing a lot more stuff with them. And I'm also combining them into other as like I say a hedge to my other trades. And then I just I I combine them

[42:12] all together into like more of a portfolio style style of a position. So, the way that I'm managing them and tracking them is is much different than to trade this as a standalone trade and look at the results. So, it's really

[42:26] difficult for me to like untangle them from the bigger positions that I have going on because they all kind of they all become one big massive trade. But, generally I would say uh these as long as you adhere to like

[42:40] the warnings that I was talking about and just understand the trade and realize that it's a very slow to get into a lost trade, but the quicker you can you can jump on those losses if the trade moves against you and flatten them

[42:53] trade moves against you and flatten them out uh lock off those losses and then it >> How will you sum up what we've been through? Um what would be your two or three most important uh takeaways that you want the audience to remember?

[43:07] >> The reason I like this trade so much is because it's sort of a hybrid trade. always been looking for a way to trade directionally, but it failed because I just can't do the directional thing.

[43:19] Uh and I love theta trades delta neutral trades. So, this this trade is like the perfect hybrid trade for me because it combines both together in one trade or it allows me to start say directionally as a directional

[43:33] uh and quickly flip it into a delta neutral more of a like an option income uh delta neutral trade like super fast. And so, that's what I that's what I like most about this trade.

[43:46] And the things that uh for others looking at maybe potentially trying this out as I would just take it slow start with small start with the XSP or just one contract on the SPX and just keep in mind that uh the sooner

[44:00] you're going to get hurt on this is if you get greedy and and don't take your profits at a reasonable level once they get in the profit or you don't lock the whole thing up into a burrito butterfly so that you're protected up and down.

[44:14] Say you Say you want to get like 50% out of it or whatever. That might That might route at least to begin with. So, just start slow.

[44:26] Take your Take your wins quickly to begin with. And if If a trade moves reason way that you're going to get hurt with this. And again, because it's such a slow-moving, gently sloped trade, uh

[44:40] significantly or you shouldn't get hurt significantly unless you just sit there and not and you don't address it. You don't do anything. So, to begin with, I would say be quick be super quick quicker than maybe you will at some

[44:54] point later on to address that risk, lock the trade up, and you know, not not let it get into a more of a like a a bigger losing trade. Even the way the positions that I showed you, there's $350 worth of risk on on one of those

[45:10] one-contract trade. And it will take days if this is a two- to three-day trade. Unless there's a huge crash, it will take days for that loss to to to Just the way that that that pink line is

[45:23] lot of room. But if you want to use that technique where you can you can claw back and you can rise raise that whole structure back up towards the break break even line if you get in the trouble, the quicker you can act on the

[45:36] to do it. >> What would be a good resources to learn more? >> I would say I haven't seen anyone else trading this this this strategy or this this combination of trades like the way

[45:49] I'm doing them. I have a free course at my trading school site and has a bunch of free trainings in there including the training on this depth than what we've gone through here. >> And I would recommend to watch the other

[46:04] interview we have with Bo Bennedah about his zero DTE levitation trades where he's trying to do some of the same moving zero DTE position into no risk

[46:17] >> Right. Yeah, and the cool thing with that is that these trades can work together really beautifully. You can you can combine them together. You can turn one into the other and they just work really well as a pair with building out

[46:29] structures that are like they're these together in your own versions of very >> Thank you very much then. >> Thank you, John. Good to see you again.