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Bearish Butterfly Rapid Options Learning

Discussion in 'Options' started by status1, Jun 5, 2016.

  1. status1

    status1 Well-Known Member

    I came across this webinar on you tube recently presented by Dave Thomas
    He was talking about setting up a one lot basic bearish butterfly on RUT ion Aog 24 2015 with 56 days out and set up the shorts 20 points below the market with equal 50 point wings
    He was saying he was looking to make 30% of $5000 or $1500 on this one lot and to reduce it to 10% or $500 if he did not make that by 21 DTE
    I tried to set up a similar trade in TOS and advance the trade to 21 DTE and I am only about half way or about 700-800 dollars
    He managed to do that by making an adjustment when the market was at the upper adjustment point and added another butterfly and than the market went up and got out of the trade pretty much at the sweet spot at 21 DTE

    I was wondering if the $1500 figure is realistic for a one lot with no adjustments
    I just don't see that happening at 21 DTE and only one lot
    Maybe at 7 DTE at the peak if you are lucky enough that the market is there at that time or with 2 lots as it was in the presentation
  2. status1

    status1 Well-Known Member

    Just a correction The market went down after the adjustment not up
  3. AKJ

    AKJ Well-Known Member

    why don't you backtest it to see if you can replicate the results
  4. Jonathan

    Jonathan Active Member

    BB is a good trade. Need large amount of confidence in the trade to trade it over time, so as Andrew said, backtest it. You can understanding it if you don't, but you won't have the confidence to keep trading it through drawdowns. You will have pretty good equity swings on the trade so yes you'll see big gains but if you were running it for the first 4 months of 2016 you'd need the courage of your convictions.

    Buy the bearish butterfly course from John Locke on SMB's website. It's not terribly expensive and contains everything you need to know. Also John Locke has his own website with additional supplemental resources. Good luck!
  5. status1

    status1 Well-Known Member

    I wish I could back test it but I don't have a software to do it with but just by looking at the result the $1500 at 21 DTE was achieved with 2 butterflies not one so that would be 15% assuming the second butterfly is also a $5000 risk so that's basically half of what he was claiming this trade can make
    I tested it by entering a simulated trade and advancing the date until it reached 21 DTE and only made half of what he is claiming it can make

    I would love to see a one lot trade that can achieve that on average with 21 DTE but I don't think there is such a thing

    I understand that there are big equity swings but what are the odds that you will always get out at the top of the apex at exactly 21 DTE and this trade was the perfect trade and only made half of that

    I think the claim that you can make 30% on $5000 at risk or $1500 on average with one lot by 21 DTE is highly exaggerated
    There was some other videos he made earlier on the same strategy and only claimed 2-3% on average which is more reasonable
  6. AKJ

    AKJ Well-Known Member

    I would recommend you buy the program or watch the dozens (maybe hundreds) of videos that john has put out. This may help fill in the gaps you have in the understanding of the strategy.
  7. ACS

    ACS Well-Known Member

    The Bearish Butterfly uses a scale-in approach so a one lot trade can end up with three butterflies at different strikes. The $1,500 target is just that and the trade normally generates a smaller profit especially if you are not fully scaled-in. John Locke covers this trade in detail every Monday morning in his free updates and you can register at his web site: https://www.lockeinyoursuccess.com/weekly-market-and-position-update/
  8. Andrei

    Andrei Well-Known Member

    I agree with Andrew: if you are interested in trading BB - buy JL's course. For back testing you will need OV (or ONE). All JL's strategies were developed using OV. I don't think TOS will work for back testing. You asked if the system can produce $1500 with one lot with no adjustments. May be once in awhile, but it is designed to have adjustments to keep within delta limits. as well as adding risk as the market moves higher It works, but it takes some perseverance, you may have to withstand very large drawdowns.

    I also suggest you join JL's community and go through some of his weekly recordings, then you can judge for yourself.
    I trade BB ,but in a modified form and often transition into M3. I do not trade into expiration. My returns are less and so are the drawdowns.
  9. status1

    status1 Well-Known Member

    I think I understand how the bearish butterfly works I was only speaking about this specific video

    where Dave Thomas is teaching Sherri Locke how to trade this strategy

    This was just a beginner type lesson so he was not planning to scale in he just made an adjustment as it went up otherwise he would not have achieved his profit target which at one point he called it $3000 which I am not sure where he got that from I can only assume that he meant 30% or 2 times $1500 because of the 2 butterflies but he never made $3000

    He did not say that you have to scale in or how much you have to scale in to achieve this target

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