Wingspread Dissection In Practice
We are going to follow an initial trade and the subsequent adjustments made in the RD3 Webinar Series, where we forecasted a likely expiration range with the Diamonetric™ Grid5 (Exhibit 6-23).
GOOG (Google) was trading at $296 with 23 days to go and a target price of 280, while staying within the range of 260 to 300. The initial trade warranted either a 280 calendar spread, or a Butterfly with a
5 Diamonetrics™
Technical analysis tool used to determine profit opportunities based on forecasting probable trading ranges, at particular options expiration dates.
280 body strike. We chose the AUG 260/280/300 Put Butterfly for 6.50 debit (10 spreads cost $6,500) because the class wanted to see how to adjust butterflies over time.
Wingspread dissection involves imaginarily selling or buying butterflies and condors against the position and placing the opposite trade in another area called the 'Butterfly Basket'. The reason that the dissector buys one and sells one is because he or she is not really making a trade, and therefore the net effect is zero. It is like debiting a trade in one account and crediting it to another.
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