Last week, I sent out a request for video topics. A top requested topic was, “How do you manage butterflies?”Today, I had a nice winner so I thought I’d make a video for you, states Danielle Shay of Fivestartrader.com.
Yesterday, I put on a bullish lotto fly for Netflix (NFLX) earnings and a put credit spread. This is because NFLX had a breakaway gap last quarter, a daily squeeze, a bullish daily trend, and a solid macro backing. The put credit spread was in and out. With the put credit spread, I set a good till cancel an order, and it filled immediately upon the opening for a 90% profit target. At that point, I needed to manage the butterfly.
Check out the price action in NFLX over the earnings report:
I had set up my butterfly as a 550/600/650 fly, meaning the long calls were at $550, the short calls were at $600, and the protective leg was at $650. This trade was originally placed when the stock was at $490, so at the time, the calls were far out of the money. But, using the Earnings Hot Zone and the market maker move, I identified a spot where I thought a bullish Netflix move would land, which was between $550 and $600, with an ultimate target at $600. The butterfly worked out well, as the stock jumped from $490 to $540 overnight, and then continued to climb to $562 after the market opened. As such, it was right in the middle of my Stacked Profits Zone.
The reason why this worked out well is because the $550 calls greatly increased in value with the overnight gap. The full target of $600 was not met, but it didn’t matter because of the rapid increase in stock price, and therefore rapid increase in the price of the $550 calls, and most importantly the fact that the stock was within my Stacked Profits Zone.
Flies are still great strategies for bullish moves, even if the full target isn’t met. I was also able to get out of the trade before Netflix fell $10, using my technical analysis.
Netflix Butterfly Overview
Check out my full video to learn more:
Learn more about Danielle Shay at Fivestartrader.com.