Breakdown: Spreads and Bullseye Butterflies

[Reports]( Live]( Me Anything](   [The More the Market Moves… The Better This Trade Works]( In the next 30 days, we expect a massive spike in volatility. And this major market movement could turbocharge the 100% profits that one group of traders is already targeting. [Get in on the action here.](   MAIN STORY [Breakdown: Spreads and Bullseye Butterflies]( By Mark Sebastian Dear Profit Takeover reader, I wanted to do a breakdown today to help explain when to choose spreads vs butterflies vs straight calls and puts… When a trader buys multiple calls and/or puts at different strike prices simultaneously, that is called a spread trade. And there’s even a way to combine spreads for an even more focused trade called a butterfly… First, let’s do a quick review. There are two different types of options: A call is the option to buy a stock (100 shares) at a certain price (strike price) on or before a specific date (expiration date). And a put is the option to sell a stock (100 shares) at a certain price (strike price) on or before a specific date (expiration date). A trader will buy calls when they think the stock is moving higher, and they will buy puts when they think the stock is moving lower. Traders can buy multiple calls and/or puts to protect their trades, minimize risk, and create a hedge, or when they have a specific speculation of how the market will move. Here are three spread strategies that traders use that combine calls and puts and why traders like them: Bull Call Spread If a trader believes a stock is heading higher (bullish), they can buy calls at one specific strike and sell the same number of calls at a higher strike price simultaneously on the same stock with the same expiration date. Utilizing this strategy, called a bull call spread, a trader will limit their upside on the trade but also limit their risk, and it will reduce the option’s overall cost compared with buying a naked call. Bear Put Spread When a trader thinks a stock is heading lower (bearish), they could buy puts at one strike and sell the same number of puts at a lower strike price simultaneously on the same stock with the same expiration date. This strategy is called a bear put spread, and allows the trader to reduce the option’s overall costbut limits both their upside on the trade and their risk on the downside compared with naked puts. Now these spreads could end up costing the trader or paying the trader to open, which would put it into one of two categories: debit spread or credit spread. Debit Spreads If the purchased option costs more than the sold option, that is considered a debit to the account and is called a debit spread. Credit Spreads The opposite is true for credit spreads. If the value of the options sold is greater than the value of the purchased options, there is a net credit to the account. Traders sometimes say they were paid to open the trade in this case. Butterfly I talk a lot about butterflies here and in the live room… and I have even dedicated entire shows [HERE]( and [HERE]( to breaking down what’s so great about this strategy and why and when I use butterflies. I use butterflies on the SPX and XSP same-day expiration plays. A butterfly is a combination of a bull spread and a bear spread where the sold strikes overlap in the middle - For this strategy, a trader will buy one lower strike, sell two middle strikes, and buy one higher strike. So for a call butterfly for example, you’d buy one call at a low strike, sell two calls at the middle strike, and buy one call at a higher strike, all on the same stock and same expiration date. When I execute butterflies in SPX and XSP, I determine the middle strike based on where I think the stock will land at expiration and the low and high strikes are typically the same amount away from the middle strike for a balanced butterfly. It’s essentially setting up a bullseye at the center where I think SPX will land that day. Butterflies are perfect when traders want to minimize risk but are willing to cap the potential profit. If you’d like to learn how to execute butterfly trades in real-time every weekday, [sign up right here for Expiration Trader.]( Luckily, you can still get in at the [Founding Member discounted price]( so join before this opportunity is over. Until next time, Mark Sebastian   FEATURED ARTICLES [Pocket Profits in GM, BP, M, and...]( Quadruple-witching is coming tomorrow, and I expect to see another big volatility spike before the end of the week... [$3.2 Trillion Move Coming Friday]( The market and the VIX is currently reflecting known unknowns. The Fed is raising rates – but we don’t know by how much… [Going "Short Short"]( The market and the VIX is currently reflecting known unknowns. The Fed is raising rates – but we don’t know by how much…   GET STARTED [The VIX: My Biggest Moneymaker in 20 Years of Trading]( The VIX is actually the single-biggest moneymaker in my trading arsenal. And in this report, I’ll tell you exactly how to use it to your advantage. [Asymmetrical Returns: The Secret Key to a Winning Portfolio]( I’ll show you how to control thousands of stock shares for a few hundred bucks – and how to turn that few hundred dollars into a few thousand over and over again. [Build the Perfect Option Trade with Implied Volatility]( By using implied volatility, you can build the perfect, cheap option trade to hand you an asymmetrical return. [The Double-Agent Strategy: Spying on Wall Street and Retail for Big Bucks]( We’re spying on Wall Street by using something called two-factor trading authentication to find 1) popular sentiment that’s backed by 2) massive money. With these two boxes checked off, this technique can work every time.   [“This Paid for My Hamptons Home” – Former Lloyds Bank Executive]( Wall Street tried to hide this trade from you. Why? The methodology behind it requires doing the exact opposite of “traditional” investing. The best part? You don’t have to buy a single stock to lock in gains as high as [625%, 812% – even 906%](. The only problem? Most people don’t have the guts to make this trade. Got what it takes? [Find out how right here.]( [The media won’t cover this until Americans are freezing and starving.]( A resource crisis in the Northeast just reached “LEVEL 4 – Code Red” status, and conditions are rapidly developing in other states around the country. The White House and mainstream media remain silent. 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