[TheOptionClub.com] Re: How to Set Triggers for Broken Wing Butterflies

 

I am not sure I am understanding, but what I think you're asking is
whether there is a way to set a "stop" on a complex spread like a BWB to
close it out. The answer is a qualified "yes."

The problem with a market order on a spread trade is that you're buying
on the ask and selling on the bid for every leg. A BWB has at least
four legs, so the slippage can really add up fast.

What I like to do is identify the price level on the underlying at which
I would want to close or adjust the trade. For example, if RUT reaches
660 I want to close my bear call spread. TOS not only let's you specify
a limit for that trade, you can have TOS enter the trade with a limit
equal to the mark price plus or minus some given amount.

So, let's say you find that you typically have to shave a nickle, maybe
a dime, off the mark to get filled. You might enter the order so that
if the RUT is at or above 660 buy the bear call spread for a limit of
the mark +.15. What that order does is tell TOS to enter a limit order
to buy the spread at the current market, plus an additional 15 cents.
Why 15 cents? If I normally have to shave a dime, I might add the extra
nickel to increase the odds of getting the fill.

The draw back of this approach is that the market may move quickly
and/or your order is not filled at the limit price. You are then left
holding the position and your losses may continue to mount. The benefit
is that you avoid using a market order and being man handled by the
market maker.

Christopher Smith
TheOptionClub.com

--- In OptionClub@yahoogroups.com, "Christopher B" <batymohn@...> wrote:
>
> Hi Guys,
> I'm getting good at finding Broken Wing Butterflies (BWB) that have a
good likelihood of success. But I always set my trigger to sell before
the trade goes negative. My problem is that I use market orders to get
out of the trade and I'm getting killed on triggers. Is there a way to
set dynamic limit orders based on the type of trade? Or am I making
this to hard? I use thinkorswim.
> Thanks.
> Chris
>

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