🚨 I’ll be live at 2:30 p.m. ET with Alex Reid🚨
We’ll cover the recent SPY rally, Brent crude’s textbook breakout setups, navigating intraday swings using Treasury yield data and more [tap to join us for Profit Panel]
I’m not a big fan of butterflies. Most traders enter them trying to peg a stock to a specific price — and honestly, that feels like guesswork dressed up as strategy. But here’s the thing: Butterflies can happen naturally when managing risk on a bull call spread. It’s a defensive move that sometimes turns into one of the best plays.
They can be used to pull in credit when a position drifts against you, and if the stock ends up settling right where the structure wants it, the payoff can be surprisingly strong.
From Bull Call Spread to Butterfly
I don’t like to just throw a butterfly on because that feels like trying to peg a market to a specific price. Say you’ve got a bull call spread on CF Industries (CF) — the $135-$136 strike. Paid about 40 cents for it, and you’re looking for the stock to move higher.
If CF starts to pull back and the spread isn’t performing, instead of watching it bleed, sell the $136-$137 call spread to bring in credit. What happens? You’ve created a butterfly.
The structure: You’re already short the $136 call from the original spread. Selling another $136 and buying a $137 puts a butterfly centered at $136. You didn’t plan it that way — you were just managing a position that wasn’t working. If CF settles at $136, the payout is strong.
Traders appreciate this approach because it’s simple, flexible, and removes much of the stress from being wrong on the initial move.
Why I Don’t Start With Butterflies
Entering butterflies directly is tricky — it’s like trying to peg a market to a specific price. Instead, using a butterfly as a defensive adjustment pulls in credit and reduces risk. You’re already directionally positioned, and the butterfly adds a layer of protection.
Start with a bull call spread, and if it’s underperforming, sell a call spread against it. The butterfly is the result, not the goal. It’s unconventional, but when it works, it creates a winner you didn’t even set out to make.
👉 Click here to join Profit Panel at 2:30 p.m. ET on weekdays!
Geof Smith
Geof Smith Trading
Follow along and join the conversation for real-time analysis, trade ideas, market insights and more!
- Telegram: https://t.me/+lm8_Nq3Su104NmFh
- YouTube: https://www.youtube.com/@FinancialWars
Important Note: No one from the ProsperityPub team or Geof Smith Trading will ever contact you directly on Telegram.
*This is for informational and educational purposes only. There is inherent risk in trading, so trade at your own risk.
P.S. I Just Flagged This Week’s Sleeper Cell Orders
I just flagged a fresh batch of Sleeper Cell orders for this week! These are instruments Wall Street has been using to get in on stocks at ridiculously cheap prices for nearly five decades.
I’ve pinpointed 12 names set to go off this week, and I want to hand them over to you today.
Get This Week’s Watchlist Right Here
Disclaimer: We develop strategies to the best of our ability, but we cannot guarantee a future return. There is always a risk of loss when trading. Past performance is not indicative of future results. According to a backtest of 64 years of data, this strategy identified winning trades 81.9% of the time on over 7,300 trades in the dataset.
