EWZ Iron Butterfly (LIVE Closing Trade)

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Iron butterfly: In this video, we’re going to go through the closing trade that we’re going to try to make here in EWZ. Again, all these videos are live real-time trading, real money account, not a paper account; this is my real Thinkorswim account here. And we’re getting closer to March expiration and going to roll off some of the positions that we have left over.

We’ve got a couple of spots left over for March expiration which we’re going to try to get rid of today. EWZ ends up being the first of those because it’s come back into an excellent range for us and we’re making some money on it. This is an iron condor order that was in Thinkorswim, but it’s an iron butterfly because we have the same short strikes on both the call and the put side.

You'll notice here when I go to the Analyze tab that our short strikes are the same. That gives us this peak in this iron condor feel and shape. Now, with only four days to go until expiration, EWZ this morning is moving down just a little bit which is good. But at the same time, we’ve got a decent profit in here; this thing has been all over the map recently over the last month, so we’re just going to try to take this thing off and close it out for a profit.

Again, the stock has been on a massive rally, but this position that we have in EWZ has worked out well as we go further through the expiration month even though implied volatility hasn't dropped all too much.

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Now, when I go to exit this trade… And this is where it’s a little bit different and this where you just have to look at what you traded something for and what the market is for now. The entire position as a whole we got into, we got into three of these iron butterflies in EWZ for $211 each, they’re now each trading for about $1.57. That’s the entire position.

But if you actually dig down a little bit deeper, what you’ll see is that our long options which are out of the money on either end, because we’re further through the expiration cycle, and there’s only four days to go until expiration, these options, although we didn't pay a lot for them to begin with either, they’re also not worth a lot at the end of the day.

Depending on your commission structure and how you pay commissions and how you either pay it by contract or not, you could choose to exit the entire position, the whole iron condor, iron butterfly order, or what we’re going to do in this case is just exit the short strikes which are the 25 call and 25 puts. We’re going to try to get rid of just the short strikes and leave those other long options on to expire worthless because they’re not worth a lot of money to exit and then pay commissions for.

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In our case, all we can do inside Thinkorswim is just right-click on the whole order and then we’re just going to create a closing order. And you can see there’s a bunch of different things. Like I said, we could get rid of the entire iron condor, iron butterfly, or we could buy back just our straddle which is just the short strikes at 25. That’s what we’re going to do actually. We’re just going to go ahead and try to buy back just the straddle which is the 25 calls and puts.

This is trading right now live time at about $1.64. What we might want to do in here is maybe try to bid just a little bit lower, a little bit higher. You could change this a little bit, maybe offer $1.63 and see if it fills. You wouldn’t want to go too far off of this price here because apparently, the market is trading in a pretty defined type range. We’re going to try to bid $1.63 real quick, see if that order gets filled to get out of all those contracts.

You could see this is the first working order that we have here today, and you know naturally, it doesn’t get filled right away because we are bidding a little bit under where the market is right now, and that’s just natural, we want to pay a little bit less to get out of it which is good. But as the stock continues to rally, we ought to come back in here and maybe adjust this price here in a little bit. I’ll pause this video for a second, a couple of minutes, we’ll see if this thing gets filled, and then we’ll come back in here and take a look at it if we need to adjust the pricing.

Alright, we’re back here just a couple of minutes later. It only took maybe four or five minutes actually to fill. But like I said, sometimes you can go ahead and try to bid a little bit below the market and try to get something out at a little bit better pricing. It does take patience obviously, and we would have come back in here and adjust the pricing in probably another 30 minutes, or so, we’d let this thing work a little bit longer.

But now, we’re out again just of the strangle, the 25 calls, the 25 puts. That effectively locks us in for a profit. Everything else that we have to now on for EWZ, this is just these two out of the money options, they’re worth right now about $1 ½ a piece, so they’re going to expire worthless. But we made all of our money in this particular instance on closing out of that short straddle and the iron butterfly width and making money as the stock stayed range bound over the last month.

Hopefully, that was an excellent example of how we get out of trade, especially an iron butterfly where you don't have to close out all of the legs. As always, I hope you guys enjoy these videos. If you have any comments or questions, please add them right below. And until next time, happy trading!

About The Author

Kirk Du Plessis

Kirk founded Option Alpha in early 2007 and currently serves as the Head Trader. In 2018, Option Alpha hit the Inc. 500 list at #215 as one of the fastest growing private companies in the US. Formerly an Investment Banker in the Mergers and Acquisitions Group for Deutsche Bank in New York and REIT Analyst for BB&T Capital Markets in Washington D.C., he's a Full-time Options Trader and Real Estate Investor. He's been interviewed on dozens of investing websites/podcasts and he's been seen in Barron’s Magazine, SmartMoney, and various other financial publications. Kirk currently lives in Pennsylvania (USA) with his beautiful wife and three children.