Bearish Butterfly

The Bearish Butterfly (BB)

Despite its fairly generic name, the BB is in fact a fairly simple yet carefully crafted butterfly trading method developed by John Locke about 10 years ago.  It is also sometimes called the M9 (older variant I assume).  If anything, the method shows that an apparently deceivingly simple trading method (it’s a simple monthly butterfly trade, right?) is essentially a matter of developing and adjusting the trade according to precise rules.  Like sometimes viewed on TV showing silly stunts or wild experiments, one would be tempted to say: “Don’t try and do it at home” 🙂  Follow proper training first…

The BB is entered as a slightly bearish butterfly (hence its name) to protect the downside with substantial negative Delta.  Consequently, most of its adjustments consist in dealing with an up market.  The BB behaves quite well in virtually all environments except for runaway bull markets like for instance seen in 2013.  The strategy comes with its clear and precise adjustments to deal with exceptional circumstances.  2015 has shown to be so far an excellent year with YTD profit in excess of 100% (return on margin)

The BB historical performance is higher than with the Weirdor, with an average return on margin in excess of 5% per month.

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Here is a typical BB entry, here as a Iron Butterfly to balance the skew a little.

(Screenshots will from time to time be published on the forum)

The Bearish Butterfly is a very robust strategy, maybe the best possible one, in the unhedged butterfly family (one may however consider the Delta-Vega compensation as a “natural” hedge.  It remains fairly easy to trade if one follows the guidelines strictly.  Only advanced traders should try and modify it.  Possible variations of the core method include further adjustments on the down side making it a little more symmetrical in its management (note that a butterfly obviously does not behave the same in a down market because of its sensitivity to volatility).  Also, trading it to expiration becomes a lot more complicated, hence one should stick to planned entry and exit dates unless one is very comfortable with Gamma trading.

For more detail on BB Coaching, please feel free to contact us at any time for a personal assessment and training programme.  Questions can also be left on the Facebook page.  A Booking calendar is available.

The BB is slighly more advanced than the Weirdor, yet also easier to approach than the M3 hedged butterfly.  It is in our view essential to master at least one (hedged or unhedged) butterfly strategy in addition to a condor like the Weirdor.

Call me! - Bruno@OM
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