Trade of the Week with a Skip Strike Butterfly – 11/25
I’ve been using a three-legged Call Spread strategy called the Skip Strike Butterfly a lot more often lately, and I thought I’d share how I did on one this past week. This was opened on Citigroup stock (C).
I picked Citi as the stock to do this trade on because it’s a major bank with a stable business, and the stock was trading at the top of its 30-day range. Also, unlike other sectors such as technology, descretionary spending, or energy, this sector is not vary volatile.
I opened this trade on November 14 with the following positions:
(40) 11/25 Calls with a $49.50 strike price at $0.95/contract. Total Cost: $3,802.40
(120) 11/25 Calls with a $50 strike price at $0.70/contract. Total Credit: $8,371.34
(80) 11/25 Calls with a $51 strike price at $0.37/contract. Total Cost: $2,931.80
My total credit at opening was $1,637.14.
On the 11th, this stock had hit a 60 day high of $50.19 on what had been referred to as a dead-cat-bounce. But momentum was trending lower since then. On the 14th, the stock was trading between $49.02 and $49.98 throughout the day, and was below $49.50 when I opened the position.
If the stock had risen to $50, my maximum profit on this position would be $3,760. The stock would have to rise all the way to $51 before reaching the maximum loss amount of $4,240.
The stock closed at $48.29 on Friday 11/25, and my options expired worthless. This allowed me to keep the full initial credit of $1,637 from open for my final profit.
What do you think of this trade? Would you have taken it? Let me know if you’ve used the Skip Strike Butterfly yourself, and how it worked for you.