Part 1- Trading the SPX

In part 1 of this course you will learn how to trade the SPX index

The trade structure demonstrated is a put broken wing butterfly

This is essentially a put credit spread with an additional long put above
the short strike to offset losses

This type of trade is better because it is more delta neutral compared to

a put credit spread

It also carries much less gamma risk meaning during periods when the
VIX shoots higher it will not be affected nearly as much as a put credit
spread would
1
Entry Guidelines (SPX)
● Technical analysis for a trade like this is not 100% required but it is
recommended to filter out bad trades
● Find technical support levels for SPX using the Daily chart
● Use the 50 and 200 SMA lines on the daily chart for support and
resistance
● If the SPX is below the 200 SMA do not enter the trade
● If the SPX is overextended above the 50 SMA do not enter the trade
○ Wait for SPX to pullback to 50 SMA before entering

2
Trade Size (SPX)
● Allocate no more than 30% of total account value
● Each butterfly uses roughly $1000-$1500 in buying power
● At least $5000 recommended account balance per butterfly

3
 Strike Selection (SPX)
Expiration: Closest to 45 DTE
All Contracts are PUTS
● Short Strike (-2 Contracts) 1.
○ Must be from -.20 to -.30 delta 2.
○ Pick the put with the most open
interest 3.
● Lower Long Strike (+1 Contract)
○ 50 points below short strike
● Higher Long Strike (+1 Contract)
○ 35-45 points above short strike
○ 40 points above is ideal
○ Use 35 or 45 points above if you don’t 4.
receive a credit, or the position delta is
not neutral (delta should be in 5.
between -0.5 and +0.5)
● Buy $1 SPX Put as Hedge (Optional)
Sell 2 of the short strike puts
Go 50 points lower than the short strike and
buy this strike
Go 35-45 points above the short strike and
buy this strike (varies depending on credit
received and position delta)
○ ALWAYS use 40 points above short
strike for this variable put UNLESS
you must pay a debit to open
Goal is to collect a credit and have a neutral
position delta (inbetween .5 and -.5)
If you are unable to collect a credit, you can
pay at MOST a .25 debit to open (.26 or
higher you should wait for another day to 4
open the trade)
When to Take Profit (SPX)
● After entry, set a GTC order to take profit at $60 per butterfly
● Once profit is taken, open another trade
● If $60 profit isn’t taken by 21 DTE, consider closing for at least breakeven
or a small profit
● Feel free to let it expire worthless to reduce commission costs if you are
unable to get $60 profit
● Note: Don’t let it expire if you paid a debit to open
● Holding until expiration can be detrimental if the market crashes and
falls lower than your short strike

5
Risk Management (SPX)
● If SPX falls below the furthest OTM put, exit and take loss if necessary
● If position delta goes higher than +3 or lower than -3 per butterfly, you can adjust
by rolling the variable put up or down (goal of this is to bring delta back to
neutral)
○ Try to avoid doing this as it can rack up unnecessary fees and commissions
○ I am not a fan of adjusting my trades, depending on the market scenario I would generally just
close out of a trade if I do not believe it will be a winning trade

6
SPX Worst Case Scenario (SPX)
● The worst thing that can happen for this trade is a huge gap up in the VIX and a
flash crash for the S&P 500
● Remember to keep in mind that you will win most of your trades but you WILL
lose a small percentage of them
● With this broken wing butterfly structure the higher long put will help to negate
losses in addition to the lower long put
○ This is why I prefer the broken wing butterfly structure over a put credit spread
● According to previous backtests the most your account should draw down during
a flash crash is up to 10% given you have only allocated 30% or less to the SPX

7
Additional Resources
I currently work as the quantitative options analyst for Haikhuu Trading which is the
#4 stock trading community online. The Haikhuu team and I would love to have you
in our amazing community.

Contact email:

mike@haikhuu.com