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I don't know why he called it an Iron Butterfly...or maybe my interpretation of the M3 trade isn't exactly what he meant...lol...an Iron Butterfly doesn't use all puts...but I'm pretty sure his M3 uses all puts...and I'm pretty sure the M3 is a net debit trade.
As to your last line in your last reply...the only purpose of adding stock (or calls), is to bring the trade to delta neutral at the beginning. It does not bring the max/profit loss down to $500/-$500.
The $500/-$500 is your exit point in terms of profit/loss. You aren't going for max profit with this trade, and you're certainly not holding on until max loss. You're exiting the trade as soon as it hits either +500 or -500 or until you hit 20 days before expiration, whichever comes first. Of course, as you gain experience, you can bend the rules a bit. For instance, my September expiration trade, I hit the 20 days to expiration point, and I was at break even with the trade. I looked at the charts and thought there was little risk in holding on a bit longer, as I thought the market was probably going to head down some...I ended up exiting about 10 days later with about half my profit goal, which was better than just break even...
If you're trading multiple lots, then of course, the +500/-500 goal becomes +1000/-1000, +1500/-1500, +2000/-2000...etc...etc...
Last edited by PaceAdvantage; 09-24-2014 at 08:37 AM.
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