Butterflies + Put Credit Spreads Combined

A Bullish Earnings Call

Last week, in the trading room, one of our members requested that I analyze the ticker AAP. This ticker belongs to Applovin, a company I’ve never traded before. This find is a prime example of the collaborative aspect of the trading room, and it’s why I appreciate our dedicated traders so much!

Upon looking at the chart, I discovered this was precisely the kind of ticker I wanted to trade. Why? It had high short interest, a history of beating EPS estimates and substantially gapping higher, and a bullish uptrend plus a squeeze.

Check out the ticker in the Hot Zone below directly before the earnings report:

Stacking My Trades

I know I’ve been writing about many neutral trades lately, but that’s because I trade the setups as they come. Most of them have been neutral setups. In this case, I looked at a chart pattern and immediately felt a bullish feel to it. Of course, that feel can be wrong, but I had to play this one to the upside.

When I have that immediate bullish feel, I love combining a bullish put credit spread and a bullish butterfly. This allows me to take advantage of overnight volatility crush on the put credit spread while also capitalizing on the directional move in price using the bullish butterfly. The put credit spread has a 1:1 risk/reward ratio, but the butterflies can have upwards of 1:10 risk/reward ratio, so there is more upside potential on the butterfly.

Occasionally when I stack trades like this, the directional butterfly may not fly like I wanted it to, but I’ll still make money on the put credit spread. Of course, when you’re wrong you lose money on both trades. Not ideal, but it happens. That is why it’s critical to take into account the overall risk you are placing on the ticker, versus the risk per trade.

Trade Review

To watch me analyze the chart, review my trades, and explain why I closed them, check out my Trade Review video below!


P.S. To join me in the Simpler Central trading room, click here!



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