Trade Alert: SPY Bearish Butterfly

This trade I actually brutally copy/pasted from ZZ Capital Management (Martin writes an excellent blog at hellosuckers.net with a trade newsletter)

Here is what Martin says:

The market got hit by rising interest rates today. It dropped almost 2% and caused serious technical damage to the market. We decided to put a protective trade - SPY bearish butterfly:


Buy to open 1 SPY Nov 19th (monthly) 2021 - 430.00 strike puts
Sell to open 2 SPY Nov 19th (monthly) 2021 - 410.00 strike puts
Buy to open 1 SPY Nov 19th (monthly) 2021 - 390.00 strike puts


Debit: 2.00
Max risk: 2.00 or $200 per trade
Max profit: 18.00 0r $1,800 per trade
If the market slides towards 410 in the next month or two, we will profit in this trade. If we see a reversal, we may convert this trade into bullish trades again.

Despite I prefer trading options on something with an underlying asset, in the past I have traded a lot of SPX and SPY. Just out of curiosity and a little bit worried about the possible market drop I decided to copy/paste this trade and see what happens next

Here is my trade setup:

  • BOT 1 SPY NOV 19 '21 430 Put Option 11.11 USD

  • SLD 2 SPY NOV 19 '21 410 Put Option 6.37 USD

  • BOT 1 SPY NOV 19 '21 390 Put Option 3.69 USD

What happens next?

We make our max profit if SPY drop to 410 by November 19, 2021, our max risk is the debit we paid: 2.00 or $200. Max profit 18 or $1,800.

In case of the profit, I will buy some quality stock from the income, in case of the loss, I will buy some stock in the value of the money lost.

After placing this trade I sent an email to Martin:

Thanks for the trade idea - I brutally copy-pasted it.. now I wonder how I will adjust if things will go South? Do you have some scenarios?

And soon got a reply:

If the market goes down to 410 this butterfly will start showing profit and once that happens we will close the trade.

If the market reverses and starts rallying, we will convert the 430/410 debit spread into a credit spread and let everything expire.