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On 20 Feb, $S&P 500(.SPX)$ is forming a bearish candle and I have opened the Broken Wing Butterfly (BWB) expiring on 13 Mar, for credit of $142. The vertical spreads for this BWB are:

• Bull Put Spread 5775/5875

• Bear Put Spread 5875/5925

Option analysis of the Broken Wing Butterfly. (Note that the numbers are different from the time the trade is filled.).

Forming my outlook:

• SPX looks over extended and trying to push above all time high.

• $NVIDIA(NVDA)$ is scheduled to announce earnings on 26 Feb. I think the results will also move the market.

• Mag 6 had reported earnings and I think mostly are positive results. This may suggest a good chance for SPX to continue in the bullish direction.

Based on the above situations, I think that uncertainty is high and I wish to build a trade that gives me some protection on the downside and still allows me to collection some premiums if the market continues in the uptrend. So, BWB looks to fit well, if you refer to the option analysis graph beginning of the article. 

Taking care of my risk:

Here are my considerations to take care of my risk:      

• I have chosen 5875 as the support level for SPX. This is based on 1 standard deviation move on 20 Feb 2025.

• I plan to cut lost if price drops below 5815 before expiry. This looks to be within 1% of my overall portfolio.

• If I stubbornly don’t cut lost, I deserve the MAX LOST of about $4,700.

Technical analysis for SPX.

Taking care of my reward:

• I plan to close the trade if I manage to achieve 50% of the premium.

• If price is at 5875 during the week of expiry, I will wish myself “all the best” to hit the jackpot of $5,300 on expiry date.

Screenshot of my position captured on 23 Feb 2025

In summary, I had opened a BWB to give me some protection on the downside and at the same time, gives me the opportunity to collect premium if the price goes up.

Comment below if you have any queries. Feel free to share with me if you have a stock in mind and like to use options for your trades. I may write an article of your stock for discussion and education within this community.

Happy trading 😊.