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Tuesday, November 9, 2010

Butterfly play on the SPY

This is a very simple idea to speculate on the movement of the SPY.
As of this writing SPY is trading at 122.73. The idea is that the markets will keep moving strong or in any case they wont plummet anytime in the next 10 days. So, I came up with a Butterfly that looks like this:

BUY 1 SPY NOV 121 CALL @2.23 (-2.23)
SELL 2 SPY NOV 125 CALL @0.37 (+0.37 X 2 = +0.74)
BUY 1 SPY NOV 129 CALL @0.05 (-0.05)

MAXIMUM PROFIT: $2.46 ($246)

PROFITABILITY RANGE: if SPY stays between $122.54 and $127.47 on November the 19th.(Third Friday of the month)

See the profit curve bellow

Limited risk/limited return strategy. I will follow up soon on this one, we'll see how it plays out.

Follow up on Butterfly play on SPY (November 15, 2010)

Closing this trade on SPY (November 20, 2010)

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