This 8-Leg Options Trade Targets Big Returns in Days

The total return since I started doing

these about 5 months ago, 120%

about 300% annualized. My average days

in a trade is about 4 days.

>> Today's option strategy has eight legs.

Eight legs. My guest says he has done 50

of these trades and all have been

winners.

Welcome Steve Gans.

>> Thank you, John. Greatly appreciate

being back again sharing a little more

of the whole fly agonal trade series

with you. And yes, this is like a big

old spider, eight legs.

>> [laughter]

>> Yes, because we have before presented

your fly agonal strategy and today we

are going to present your flight

diagonal strategies. You know, I get a

bit messed up with these names, but you

have 40 seconds to tell us what is this

trade and how has it worked for you?

>> Sure. So basically I started with the

fly agonal which is a combination of a

call broken wing butterfly and a put

diagonal. And from that we went to a

slightly different variant, but then we

evolved to this new what we call the fly

diagonal and I think it'll become

somewhat clear when we look at the P&L

diagram of it why it's called the fly

diagonal. It's got kind of a dagger

shape to it. And and yeah, that's been

the newest variant and I've done 50 of

those and right now up until up until

today

100% win rate. So I I did close out a

small loser here today. But the stats

I'm going to show you that happened just

at the close of market which just

happened. So the stats I'm going to show

do not have that one included in it, but

in total transparency there was a loser

that finally came in.

>> All right, and we will get into the

details of this eight-legged trade, of

course.

You are back for the third time, I

believe, as an interview guest on on

this show, but, you know, still, tell us

just a little bit about yourself.

>> Certainly, John. So, I've traded stock

and options for over 30 years. I have

taught for a number of different

companies, including uh Online Trading

Academy, which has a global set of

campuses around the world, Aeromir. I

worked for Kirk at Options Alpha, the

bot trading platform, helping him launch

his new platform. I also I'm assisting

uh Charles at Option Traders Assistant,

which is the main software I use with

some UI interfaces, things like that.

And I've had hundreds of students that I

have taught directly about options

trading, as well. So, I'm just I'm just

a passionate person that loves to share

ideas and concepts uh when it comes to

options trading. It's just really

exciting to me.

>> So, let's get to your latest strategy

first. I wonder, what are you trying to

achieve with this variation?

>> Well, with all variations of the fly

agonal, the the way that it came about

to begin with was my main teachings up

until late 2024 were all about broken

wing butterflies and trading them for

income purposes and uh in faster

methods, not necessarily zero DTE, but

in shorter time frames. I I I day traded

years ago and I'm not a fan of uh

sitting at my screen all day anymore.

So, I don't do zero DTE, but I was

looking at uh trading broken wing

butterflies for income purposes and then

also calendars and diagonals. And I have

detailed classes on both of those, but

as I'm teaching those, you know, most

people know that, hey, when volatility

gets higher, you it's better to put on a

butterfly trade. When volatility is

lower, people lean toward calendars and

diagonals. And in my mind, I keep

thinking, these two need to be married.

We need to somehow find a way of putting

these together. So, in late 2024, I

started playing a lot with AI, asking

key questions of uh the the main

question basically being how can I get

faster theta decay out of an existing

options trade? And one of the key things

that kept coming back was you need to

overlap them. They they need to somehow

lay over the top of each other because

then you're getting double the theta

decay, but you're not really adding much

addi- additional risk into the trade.

So, that's what this is designed to do.

The flyagonal series of trades, there's

there's three separate trades there,

do that. Each one of them does it in a

slightly different way. The latest

version, the eight-leg version being the

fly diagonal, has a iron butterfly at

the market, and then it's got calendars

and diagonals on either side. So, that's

the latest version. And if you want to

know more about the prior version, go

check out some prior videos here on

Shawn's channel.

>> Yes, we do have a a lengthy interview

about your flyagonal, and which which is

uh essentially a put diagonal below, and

it's a call broken wing butterfly above,

and this is um 8 to 10 days to

expiration type of strategy. And I do

recommend people to just check out that

interview. It will be linked in the

description, so you can have that as as

the background. But, let's get a bit

more into the details of your fly

diagonal. I need to keep my tongue the

right way here to say all these uh all

these names. So, give us a bit more

details about the fly diagonal trade.

>> Yeah, so this is where if you look at my

screen right now, I can share my screen,

and you will see the

uh the general concept behind it. So, it

plays through this this little uh

GIF file. So, we start off with the

butterfly in the center and then a put

diagonal and a call diagonal spaced out

and it gives us a massive wide tent. So,

and those three structures all have an

overlaying center where there's theta

decay happening at essentially a wide

range in the center of that structure.

So, again, the key here is ideally the

market's going to stay in somewhat of a

general range and if it stays between

these two outer peaks and or right under

that center peak, that's kind of an

ideal situation for us. In that

scenario, this thing decays really fast.

Now, the reason we want that thing to

decay so fast is because then we have to

or we can be in that trade a lot less.

We don't have to be in it nearly as long

when it's decaying at three times the

rate of a normal butterfly, for example.

So, that's why I think this whole series

of trades is so effective is because

we're getting that theta bomb that

occurs right at the center of that.

We're getting three times the decay in

or somewhere close to that. Depends on

volatility conditions.

And if the market does wander up or

down, we've got these really wide tents

out there to kind of catch down moves

and up moves. So, this particular trade

at this point has not needed to be

adjusted very much at all.

In fact, I have a

a stats page which I just put up there

right now. This is the stats on the

flight diagonal trade itself. Again,

I've done 50 of these personally.

Up until today, it was at a 100% win

rate, 50 out of 50. The total return

since I started doing these about 5

months ago, 120%

about 300% annualized. My average days

in a trade is about 4 days. Now, I'm

putting these on out in a

anywhere from a 7 to maybe a 14-day

window, meaning the front strikes that

are used in this structure, which you're

going to see shortly, are going to be in

around that 7 to 10-day window of time.

But, even at that, it's decaying fast

enough with that triple decay, that

theta bomb in the middle, that I'm

hitting profit targets fairly quickly.

So, the next question is, well, what's a

profit target? So, for me, the profit

target on the first day, if I'm in the

trade

if I put the trade on last Friday, for

example, today is Monday,

I'm looking for 5 6 7% today, my first

day in the trade.

In the on occasions, I've hit that 5 6%

on day zero. Like I opened the trade in

the morning, by the time I get to the

afternoon, it's hitting those numbers. I

go ahead and pull it off. But, within

that 24-to-48-hour

window,

I'm shooting for 5 to 6 7%. Once we get

outside that window, I'm shooting for a

10 to 15%. So, when it hits those

targets, I pull it off.

>> So, let's I think it would be very

useful now if I look at the specific

example of a trade where you show

exactly what strikes you do and etc.

>> Okay, so this is basically what the fly

diagonal trade looks like. And it is

an eight-legged monster. Um, but let me

break it down for you. Let me try to

make it a little bit simpler. So, what I

want to do These are, of course, the um

upper uh the calls, and down below here

is the puts. So, let me first show you

just the structure here. Let me turn my

my drawing tools back on so we can see

here that our center strikes 6890

6890. So what is that? Well, we all know

that that is a butterfly. Okay, we're

selling the center strikes here. We're

selling them in this case at the market

and then it's got 50 point wings either

side. So I can turn the two sides of

this off and on over here in this

software Option Traders Assistant. And

this software, while it's not my

company, not my software, the developer

of the software has been very very good

about modifying the software for our

particular uses in trading this

particular type of trade. The first

thing we can see is that this portion of

the trade, like I said, this is the

butterfly. Pretty standard butterfly.

>> An iron butterfly where you sold both

the call and the put

>> this is an iron butterfly. Correct. Good

point because the prior fly diagonals

are using call butterflies. So the

reason for the iron butterfly here is

generally speaking,

uh well, I should say the prior ones,

the call butterfly also isn't centered

at the current market. So this one is

centered at the current market and it

the reason for that is that's where you

get your absolute most premium out of a

trade is you're going to sell those

center short strikes. So

that's the butterfly portion of it.

Separate from that is the diagonal

portion. So it's essentially a double

diagonal. And I've traded both of these

structures for years,

you know, many years. And I always again

tended to lean toward, oh well, when

it's lower volatility, you put on the

diagonal because it's positive Vega. So

if the volatility expands, it's it's to

be good for this trade. And the

butterfly, you want to put on in lower

volatility. Or excuse me, you want to

put on the butterfly in higher

volatility because when volatility

shrinks, that's good for it. Well, what

if I don't want to sit there and try to

figure out is volatility higher or lower

right now? Is it going higher? Is it

going lower? I don't know. Uh so, let me

put on something that covers both sides

of the volatility equation.

And basically, one side kind of

neutralizes the other from a volatility

standpoint. That means two key things.

One, I can put this trade on anytime I

want. I don't need to sit and wait for

volatility to be higher or volatility to

be lower. It It works well in all those

environments. So, I'm pretty much

agnostic. I'm not waiting around

anymore.

>> So, how many days out have you put this

How many days

>> This one right Oh, this one right here

is a little further out than normal. I

just modeled one up here. This one is

modeled out at 32 days expiration. So,

and again, I often do these in the the

10- to 12- 14-day window, even a short

as 7-day window. Um I I just chose to

model this one a little further out. One

of the reasons that I get into in my

classes on going further out is if I

want something that's maybe going to

move a little slower,

uh like one of my students just left for

a trip to New Zealand for 3 weeks. He

still wanted to trade, but he didn't

know that he'd be able to look at his

screens every day. Well, if you just go

further out in time,

you get even a wider tent, and the T0

line stays flatter for longer. So, if

you go two or three days and you don't

have a chance to look at it, uh unless

the market makes a massive move, it's

not a big deal.

>> How does this trade develop as time

passes? Because now now you're showing

us you've set it up, right?

>> Yeah, so so this is the basic setup of

the trade here. Again, as you know,

we've got the butterfly in the center

and then we've got the two diagonals out

on either side. And then really what

we're looking to have happen over time

is we've got a pretty sizable amount of

theta working here. Of course, if we go

shorter days to expiration, this theta

is going to be higher. It's going to

decay faster, but we're going to be a

little bit narrower and therefore our T0

line is going to mound up a little bit

faster giving us a little more gamma.

So, what I teach my students is if

you're wanting to be a short short-term

trader and you're willing to sit at a

screen, we'll put these on two, three,

four days out.

If you are working full-time and you

might not be able to look at these for a

day or two, then go further out in time.

It's an equally effective trade. The

further you go out in time, the wider

your tent will end up being, the flatter

the T0 line will end up being, but

basically we're just looking for this

stated decay to kick in and this thing

will, you know, over time pretty quickly

in most cases, get to that 10% mark and

just take the trade off.

>> You said that that the iron butterfly

and the diagonals are kind of

neutralizing each other when it comes to

volatility. Is that actually something

you aim for to get like the Vega around

zero on the total trade?

>> I I don't necessarily shoot for that. I

mean, it's not like I'm coming in here.

We can see that the we've got positive

Vega of 11 on the double diagonal side

and then we're going to have negative

Vega of 19. Am I trying to structure

this in a way that totally neutralizes

Vega? No, I'm not. And the reason that I

don't worry too much about that and I

can't Uh,

as you probably know, I it it's just

impossible to go too far down this

rabbit hole, but just because a trade

models as positive Vega

does not mean it always acts that way,

particularly with calendars and

diagonals. It all depends on where

volatility comes in. Does it come in on

our our front period strike, or does it

come in on the later period strike? And

there's no way of really knowing that.

So, that's a long way of saying that

while this shows positive Vega, I don't

necessarily count on it acting as

positive as it shows, and therefore

there's no sense in me trying to balance

those things out. I mean, they do

balance things out

certainly to an extent, but am I trying

to go in there to get a precise number

here that takes this to some specific

number? No, I'm not. I'm just relying on

the two structures to generally act the

way they're supposed to.

>> Let's get a little bit more into the

details of your entry mechanics. What

are the underlying so use here? You said

a little bit about DTEs, but can you be

a bit more specific on that part as

well?

>> Yeah, so on all of the fly diagonal

series, they are built around

predominantly doing a Friday to a Monday

expiration. So, in other words, all of

the front period strikes

will end up being on a Friday date. And

then all of the

later dated strikes

will often be on the following Monday.

They don't have to be. They could be. If

you're trading something, for example,

let's say you're trading this in Tesla.

I've traded this in a lot of underlines.

I've done it in SPX is my main vehicle,

for sure. I've done it in spy. I've done

it in the queues. I've done it in IWM.

I've done it in Tesla, Microsoft. Um,

anything that's highly liquid. So,

but not all of them have Monday

expirations. So,

I always have the front side is always

going to be a Friday.

The back side or the further dated might

be the following Monday, might be the

following Friday.

That can vary depending on the

underlying. But the reason for that is

that

as most people probably know if you've

traded for any period of time, the

market makers tend to kind of spike up

the Friday volatilities a little bit to

carry them through the weekend. It's

kind of a little bit of a buffer. I want

to take advantage of that buffer. So, if

I'm going to sell short strikes here,

I want to sell them not only at the

money, but I want to sell them on a

Friday expiration because those tend to

usually be elevated a little bit anyway.

It helps me get a little bit of what

people sometimes call backwardation.

>> I want to go back to your example. You

said that you put your iron iron

butterfly was put at the money with a 50

wide

wings. But but then the diagonals, how

much further out do you put that?

Let's take this trade here for instance.

How how much further out have you put

those and why?

>> Right. So, basically I usually go an

additional 50 points or excuse me, yeah,

an additional 50 points on those. So, in

other words, I have looking at the call

side, I've got my short strike at at the

money. My long strike is 50 points

higher.

Then I go out and I sell my short strike

of the diagonal

roughly 50 points higher than that. This

is not exactly 50 points in this case.

The reason for that is over here on my

long side, once you get out a certain

distance, you don't necessarily have

strikes every five points. In this case,

we only have them at 25-point

increments. So, I I basically adjusted

this a little bit. Um I I could go out

in fact actually this is probably just

fine. So, I'm 50 points higher here.

And then I'm usually 20 points

from here

to here, but I don't have a 20-point

increment because again that doesn't

exist out there right now. But my goal

is to essentially be delta neutral. By

delta neutral, I you know, I don't care

if I'm positive

you know, one or two, negative one or

two, it's not that precise. I just want

to be somewhere around delta neutral. I

don't want to be 10 positive delta or

anything along those lines. And so yeah,

that's that's essentially what I'm

looking for. And then the same is true

on the downside. On the downside, I tend

to go 50 points and then the distance

from here to here will usually be 20

points. If I want a less expensive

trade, in other words, this is going to

carry roughly $3,000 in buying power,

$3,000 in risk on entry. If maybe I was

a little concerned about

having that much risk in the trade, I

could

basically just do a calendar

on either side. Now that would, I'm not

sure why it showed going up there. I'd

have to bring it in on the other side

too, but I can narrow the difference

here in these points because these to

some extent are acting like a a

vertical. So, I could basically change

them around a little bit. I take that

back. Obviously moving that down is

going to bring Yeah, I don't even have

strikes higher. But I can adjust these

around to

change the buying power I'm going to be

using here is basically what I was

trying to say. But since I only have

50-point increments here

or 25 points and then 50 points, there's

just not much I can do with this.

>> Let Let's repeat your rules for when you

take profit.

>> My goal is that within the first day

that I put the trade on. So, in other

words, and the next question is going to

be, "Well, do you put these on in the

morning? Do you put these on in the

afternoon?" Doesn't make a difference. I

I

of the fly eagle trade series, I've done

a couple hundred over a couple hundred

of them now, and I analyze all of those

with AI as far as days of the week, time

of day I put them on, all sorts of

information like that. Uh

Again, 250 or so trades isn't a massive

number. So,

uh anything that it did show, I don't

know that I would consider statistically

valid. But, I'm not finding any

indication that says, "Hey, morning's

better, evening's better, Monday's

better, Wednesday's better." But, back

to your original question of uh the

profit taking, so if I put one of these

on in the morning, um and it hits a 4-5%

by the close of the day, I'm going to go

ahead and shut the trade down. I'll take

5% in a day, all day, every day, because

that ends up being over 3,000%

annualized.

And that's after commissions, by the

way. So, that's okay. Yeah, exactly.

Exactly. I'll I'll do that all day,

every day.

Um but, if we roll into a subsequent

day, still on day one, what I call it,

day zero is the day I open it. On day

one, if I can attain those same

objectives on day one, yeah, I'll go

ahead and pull the plug. I'll take my 5,

6, 7% on day one.

After day one, then I'm waiting, looking

at getting to uh somewhere in the

neighborhood of around a 10 to 12-15%

profit target is what I'm shooting for

after for original opening.

>> Okay, but I guess that these trades

don't always develop as you want. And

sometimes they get into negative

territory.

You said you only have winners so far,

but I still have to ask you, when are

you planning to take a loss?

>> Uh in almost all of my options trading,

I'm a guy that

doesn't close out at a loss. Doesn't

mean I don't take a loss, but I don't

run stops on my trades, okay? And rather

than a stop, I use defined risk trades

to begin with. So, I know that this

trade, if I were to enter it right now,

has $3,000 in risk associated with it.

And that is worst-case scenario if the

market absolutely tanked and I never

adjusted the trade. One of the things

that every option trader needs to know

is how to effectively adjust your

positions. Because I've taken the time

to learn how to properly and effectively

adjust positions, more often than not, I

can

uh if a trade gets into trouble, if a

trade gets into negative territory,

particularly to the downside, I can

usually heal that wound. So, I will go

ahead. There's adjustments you can put

on, and I spend hours on adjustments in

the courses and things, but adjustments

you can put on that basically will allow

the trade to recover in most cases. Now,

specifically when I'm trading SPX,

regardless of what structure I'm

trading, whether it's a condor or

butterfly, which quite frankly, I don't

trade anymore unless they're in a flag

and a

configuration. But, um I don't take

stops because uh stops, specifically

mechanical stops, when you get a hard

fast move in the market, up or down, uh

a lot of the market makers start

standing back, and and the market just

kind of dries up. Bid-ask spreads will

get really, really wide, and if I have a

stop order out there that just gets

activated in the market,

I am going to get crushed on that

bid-ask spread. My loss is going to be

significantly larger than what it showed

on paper by the time I get filled. So,

for that reason, uh I do not use stops,

at least not mechanical stops. I don't

use stops of any type. I look at the

position after the market's moved, it

will be down, I'll decide what is an

adjustment technique that I might make

on that trade, and I'll go ahead apply

an adjustment, and that in many cases

can bring the trade back to a lower

level of profitability, or at least

reduce losses in the trade. So, that's

usually what I do as opposed to taking a

stop.

>> So, let's be specific about this. Let's

say the market makes a big fall down,

and this trade gets into trouble. What

are the ways you can use specifically

then to adjust this trade?

>> There are a lot of different ways when

you're dealing with eight legs. So, um

for in the course, I kind of categorize

I've got at least five different

downside adjustments that I recommend

students go through to try to determine

which one's going to work best. Now, it

depends on how early you are in the

trade. If if you're brand new and early

in this trade, there's certain things

are going to work better than others. If

you get later in the trade, your you're

more limited as to what will work. But,

some of the standard things that you're

going to do, if the market, let's just

say right now, if the market were to

move down significantly, some of the

first lines of defense that I look at is

I'll move my calls, my short calls,

down.

If I take some of the short calls that

are in this structure and I move them

lower, I'm picking up premium. I'm able

to sell the the um or buy back my short

calls for less profiting on that and

then I go down and I sell them closer to

the current market. That brings premium

into that trade and that's going to you

know, tilt my tent open it up a little

bit to the downside.

>> Is it a short call both in the these are

the short calls both in the butterfly

and the diagonal that you would move?

>> I I will model I will model both of them

and I'll see which one gives me the most

favorable

um

picture if you will. And what I'm

looking for in a favorable picture by

the way is I want something that's going

to keep my theta levels high. I want

something that's not going to force me

to add too much additional buying power

or risk into the trade. So those are the

kind of my main caveats when I look at

making that adjustment is you know, what

adjustments can I make that aren't going

to introduce a whole bunch more buying

power. You're going to have to introduce

some, but not introduce a massive amount

of additional buying power and something

that's going to keep my theta high. And

the standard moves again are going to be

move some of the short calls down and

I'll model the different ones, you know,

which ones do I move down and that's

also going to vary a little bit based on

my perception of the market, where I

read the range of the market. Now this

this strategy does not require

technical analysis for the most part.

It's not like you're day trading and

you're looking at 5-minute bars etc.

I am looking at a market range that's a

couple hundred points, 300 points wide

and I'm picking out where there might be

support and resistance and it it doesn't

have to be very precise at all, but if

for example, I'm taking heat to the

downside, the the market's moving down,

my trade might be down a little bit of

money at that point. Um before I make an

adjustment, I'm going to go out and I'm

going to take a look at the chart and

I'm going to see, well, are we coming

down to an area that might represent

some support? If we are, I might hold

off a day before I go and make any

adjustment.

>> Moving down the calls is one way. What

could be other ways?

>> Another way, if you get a massive gap

down, let's just say again, this one

that I modeled up, I'm just taking a

look at it here. So, it's centered at

6880.

Uh if our market moved down, let's just

say we got a 200-point drop here. So,

we're down here to 66

you know, 80, somewhere down in here. A

couple things are going to happen. First

of all, our market drops down to here,

volatility is going to increase on that.

And if volatility increases, our tent

will usually widen out. Okay? So, that

6680 or whatever, well, gee, we're only

down 128 bucks if the market goes down

there. Based on Black-Scholes options

modeling, which again, it may not play

out exactly like that. But that's why

the downside move, in my perspective, is

not the one that I fear. This trade

handles downside moves really well. It

handles increases in volatility really

well. But all that said, so let's just

say we get that big downside move and

volatility picked up. Well, a couple

things that I could consider, I may

choose to come down because if

volatility picked up, um we're probably

going to have some backwardation down

here. So, what do I mean by

backwardation? If I come and look at

volatility, now we're not going to see

that here right now, just to be clear.

Yeah, there actually is a slight amount,

but if we came down below the market

here

and we had a little bit of

backwardation, I would just add in

a whole new diagonal down there.

And that you can see just widens this

whole structure out immensely. And it

would widen it out even further

if we had more backwardation here.

>> What what do you mean by backwardation?

>> Backwardation is where the front

volatility, in this case is 1799,

is the IV on the front period here

versus the back period is 1760. So, that

is actually a little bit of

backwardation. When the front volatility

is higher than the back volatility. The

more that happens, if I'm selling

something as an option seller, I want to

sell something that's highly valued. I I

want to sell the higher-valued stuff.

And buy the lower-valued stuff. So,

that's kind of what you're doing here.

That's what you're

That's an ideal situation for making an

adjustment. It It actually is um

when the market moves to the downside,

your toolbox opens up.

And you can see how that changed this

whole structure of this tent. It

increased my theta decay. It made it a

whole bunch wider. So,

downside adjustments are easy to model,

easy to plan, um easy to implement.

>> But, we had recently a big jump up in

the market. And I get from what you are

saying that that's actually the type of

situation you don't like.

>> That that is the type of situation I

don't like. So, now

I should say that there are ways of

modifying this trade a little bit. If I

had a or if I had an inclination that

hey, we are in a really super bullish

mode. Now, I'm not talking just a a

drift up of a couple hundred points over

a week. That that doesn't make any

difference. This handles that just fine.

But, when you look at our markets here

in the past

9 days, and we are up over 10% in 9

days, one of those being a 3% gap up,

that is somewhat unheard of territory. I

mean, you've only had a move like that

maybe once every 3 4 years, and it's

usually after a big drop like in COVID

era, you had massive massive drop, and

then the Fed comes out and announces a

bunch of stimulus, and then the market,

you know, rips back up. On those days,

we did have uh I believe one of those

days was a 10% gap in a day. So, that is

not a favorable situation for this

trade, but they don't happen very often.

>> Okay, but what can you do what would you

do if it let's say maybe not 10%, but if

you had like a big jump here, it goes

beyond your the short on your diagonal

call diagonal. What what would you do

then?

>> So, similar similar uh moves, or I

should say the opposite move. So, if the

market starts moving up, one of the

standard moves is that I would take my

short puts, and I would move those a

little bit higher. And we can see if I

move those higher, that opens up this

upside here a little bit. So, I've got

my risk is a little further out, and my

risk is a little less if this thing

gaps, you know, all the way up to here.

Now, the difference though is

anytime you're adjusting an options

trade that's going against you to the

upside, this is true of butterflies,

this is true of calendars and diagonals,

it's true of condors, you're not getting

as much premium when you go to make that

adjustment. So, it's a little bit harder

to do, and not harder. Um I mean, it

it'll still execute, it will still fill

just fine. You're just not getting a

premium

um to make that adjustment. So, the

adjustments become a little more

expensive. You're getting a little more

tied up into that trade at that point

than what you would have to do in a down

move. So, down moves are are easy peasy.

These big up moves, again, a grind up,

not a problem. These big up moves

represent more of a challenge just

because any move I would make to try to

bring extra premium into this trade, I'm

just not going to get the extra premium

because volatility is low at that time.

>> And uh that big jump upward also

typically lead to a big drop in

volatility. And diagonals are not doing

are not doing very well in big drops in

volatility, are they?

>> Uh no, the diagonal doesn't do as well

in a big drop in volatility. And again,

the bigger part is the

if we stay generally within a couple

hundred points of where this trade is

put on. Again, here we're 6880.

I mean, if we go up to, you know, 7,000,

7100, 7500, whatever. So, you've got a a

couple hundred point range there that

you can float back and forth in, and

this thing is going to decay very nicely

in there without too much difficulty.

It's that big gap up that you then start

to take heat on the upside. And while

you can adjust that out as well, you can

do different adjustments like you just

saw me do, you don't get nearly as

favorable terms

to make that adjustment. You don't get

as much premium coming in, so it's more

difficult to write the ship, so to

speak.

>> And I guess this is the worst that can

happen with this strategy. Is that so?

>> I wouldn't call it the worst. This is

would be what I would call the second

worst. And and again, fortunately, this

does not happen very often. Right now,

this move that we're having is, you

know, there hasn't been a move like this

in years that has been this sustained,

this fast. But the worst,

it's it's important. I'm just doing a

video right now that's going to be added

to the course that specifically talks

about what breaks the fly agonal series

trade. It's important that every trader

know, no matter what you're trading, you

need to first look at the worst case

scenario so you understand that.

>> So what is the

>> Well, the worst case scenario on this

one is what I call the whipsaw and it

happened in COVID and why that's worse,

it happened in COVID and it happened

more recently in the tariffs on tariffs

off situation last year.

And both of those, I mean our market

dropped

15, 20% in a period of a couple days

and and that's fine. That big down move,

I can adjust for that. I can add in

calendars. I'm getting a premium. We've

got backwardation.

Everything's good. I I got no problem

with that at all. So and most traders

fear the heck out of that. I'm perfectly

fine with that because I know these

adjustment techniques. The worst case

scenario there is we get that big move

down and the market starts to stabilize

a little bit and I've put on all my

adjustments, my my new tent structure

is, you know, right down around where

the market is now and lots of theta

decay, everything's rosy and then we

decide, oh well, tariffs are off. I

solved the problem. And then the market

rips back up right through the newly

established tents you've created. So in

that scenario you're basically getting a

double whammy if you will because you

you paid money to make your adjustments

when the market went down. You had to

give up something in order to reset your

tent. So you've reset your tent, you've

you've paid to pick up camp and move to

a new location and that new location is

great and then all of a sudden it's on

fire as the market's ripping back up and

then you need to chase your tail and go

back to the other side. So, that's the

worst case scenario and that's not

unique to this trade. Any sort of Delta

neutral

Theta positive condor butterfly whatever

is going to suffer that that same fate

in that type of market. I'd say this one

suffers it less than those others do,

but that is the worst case scenario, but

fortunately I went back last 20 years

we've had seven events like that.

>> We we have presented a fly diagonal

strategy earlier and this is the fly

diagonal

I'm just curious about how what do you

think are the pros and cons of those two

if you are to compare those strategies?

>> Yeah, so great question and I would say

that the fly diagonal interesting again,

there's three variations of this just

recently I took all the results from

well first of all, I fed the P&L

diagrams like what you've already seen

for all three of them. I fed them to

three separate AI's.

I tend to use um

uh let's see I use uh chat GPT, I use

Gemini and I use Claude at this point.

At one point I also use perplexity, but

those are the three I fed all three of

them these P&L diagrams on the sample

trade like hey, if I'm going to enter

this trade right now, this is what it's

going to look like. Tell me where

they're going to break. Tell me where

I'm going to run into problems. Tell me

which one you like and why. All three

AI's agreed fly D was the best as far as

the it is the more expensive one to

enter as far as buying power, but it's

the best because it has the widest tent

fastest Theta decay, etc. All three were

in agreement on that. All three also

said the original fly diagonal which if

you go back and watch our prior video

here John,

while it did phenomenal and it's at a

95% win rate,

all three said "Retire that one."

That that one is has been replaced by

the fly B variant and the fly D.

So, and and the reason is the only

reason it gave for using that original

one. The original one is the least

expensive to enter. It requires the

least amount of buying power because it

it only has

one side that has a diagonal in it and

diagonals are more expensive.

>> So, that's just to make it clear for the

audience. That is a put diagonal on the

downside is a call and broken wing

butterfly on the

upside.

>> Correct.

>> And your plan in your fly angle B, what

what what was that again?

>> So, what what's different with the B is

the very first adjustment we would

always make when the market moved up

with the original variant is I would

take the very upper long call in the

butterfly and I would move it out to the

next expiration.

So, that would be an adjustment we would

normally make if the market started

moving up on us. Well, as we were having

this non-stop kind of slow grind up

market over the past year, it's like,

"Why don't we just start there?"

So, we started analyzing just starting

there. That would be our starting

position for the trade and it it has

higher theta so it decays faster. It

does cost a little more to enter.

So, these three variants to get back to

the analysis part, I then took all of

the trades that I've done and I've got

roughly 100 of the original variant.

I've got about 60 or 70 of the B's and

I've got 50 of the D's. I fed all of the

files into AI and had it analyze those

and the results actually came back

exactly as they had predicted. So, it

was kind of interesting because I asked

all the AIs just based on this P&L

diagram, what would you expect? After I

got those results, I fed in all of my

data and it

AI was right in its assessment and

basically said the only reason to use

the A variant, the original, I I say A,

it's actually O for original. Confusing.

The only reason to use the original

variant is if you want a lowest cost to

entry. It's going to have the narrowest

overall range to it. It's still 150

points wide, but it's going to have the

lowest overall range.

The B, which is that widened out uh

calendarized

butterfly

uh has a

mid-range width of a tent,

faster theta decay than the original,

and then the D variant has the

ultra-wide tent,

and

it is a little more effective in higher

volatility environments

because we're selling the two strikes

right at the money.

Now, I've been using it even in this low

volatility environment and it works

fine. Obviously, with 50 winners out of

50 trades, uh it has performed fine, but

I will hit my profit targets faster

if I enter

that trade when volatility is higher.

>> Okay, there are a lot of different

variations here and a lot of facts to

keep uh track of, but I do recommend uh

the audience to watch the interview you

did with you about the original fly

diagonal trade. But, you know, I always

ask,

place your Please place your strategy on

a risk profile scale from one being very

low risk to 10 being very high risk.

Where would you put this latest

variation, the fly diagonal, uh on such

a risk profile scale?

>> Yeah,

good question and I

I guess I would say it depends on your

level of um

uh

no, it doesn't depend on your level of

experience. That's probably not a way a

good way of putting it. It is a defined

risk trade. And at the end of the day,

if you wanted to trade this in spy, you

can enter this trade for a max risk of

$150 to $250.

So

I feel like that question, particularly

when you're dealing with defined risk

trades, puts a defined risk trade

automatically in the lower half of that

scale. You know, if I were trading a

naked strangle or something, I would

call that

probably one of the higher risk trades

you can do. So, just the sheer fact that

this is defined risk, I think certainly

puts it to the lower end of that scale.

And if I remember your scale, John, it

was 1 to 10 and and with one being the

lowest risk, right?

>> Yes. Yes.

>> Maybe three, four, somewhere in that

general range. And I think you also have

to factor in the massively high win

rate. I mean, with a 95% win rate over

the entire fly angle series,

you're also pretty low risk just because

of the high win rate.

>> Steve, you you had touched on this in

the beginning, but let's get back to

your results of trading this strategy so

far with 51 trades, if I understand it

correctly.

>> Well, that that's not totally correct.

So, this that specific strategy, yes, 51

trades and 50 out of 50 winners up until

just yesterday. Uh that said, I

those were my personal trades. I think

it's probably more meaningful to show

you the trades that I actually share

with students in the alert service.

Let's take a look. I've got actually

some results that I've pulled together

here. And to be clear, these aren't the

results on just the fly diagonal. These

are the results, which I consider to be

a little more important because these

are all in my alert service. They were

all shared with the students, but a

couple things to note here. First of

all, this is August of last year is when

I started doing this.

These are the results during that period

of time, and this red line here is the

SPX. So, we can see while the SPX is up

a little bit over this period of time,

um the results of the service is up

significantly more with all of the

various fly agonal trades. And again,

I'm I've traded all three variations in

here. I share all three variations. 100%

winning months. This is the profit by

month. Uh 95% win rate. A 6.98

of the um profit factor. Average days in

trade 5.2. Now, remember the prior

diagram we looked at was 4.1. That was

specifically the fly diagonal version of

the trade. So, this is all of them

combined.

Um 72%

required no adjusting. And the win loss

streak I like to look at. Well, there

were 31 wins in a row. That's I'm on

that streak right now.

Uh winning or losing trades in a row,

the streak has been one. And it happened

a couple times. We can see down at the

bottom here. This is the uh number of

weeks winning. There have been two

[clears throat] losing weeks in there.

So, one other thing I'd like to share.

This is my Trade Year account. Now, this

is a smaller account that I set up

specifically just to trade the fly

agonal series in. I started back in July

here, and this trades or this account

started with about $28,000.

And now, as of April 6th actually is

when I took the screenshot, uh I had

grown that to $59,000. So, that's about

a 106% gain in roughly 9 months or about

$30,000.

So, and I it's It's that amount now. I

haven't traded it as consistently over

the last week or two, but I wanted to

provide this because these screenshots

of that P&L diagram, if any of you have

Trade Year, you know that it shows right

on your

web login on the upper right. So, these

are taken directly from there. So,

again, the the performance has been

in my 30 years of trading, I've never

seen anything perform like this trade.

As we always say with options trading,

uh past results do not reflect future

results, or whatever that phrase is.

John, I'm sure you'll get to it. You'll

probably be saying it a little bit later

as well.

But, one of the things I like to do with

students is I want to make sure, as I

mentioned earlier, that when you look at

a trade, the first thing you look at is

what's the worst-case scenario. What do

Where is this thing going to break, and

how bad's it going to hurt when it

breaks? And that's my job is to make

sure people understand that,

and then they can decide what to do with

it from there.

>> Let's uh sum up. What are the two or

three

takeaways that you really would like the

audience to remember from this

interview?

>> Wide range, no matter which one of these

you use, wide range,

theta bomb. So, I have people that trade

other different strategies, not to take

anything away from other strategies, but

we all know some of the names out there,

Rhino, A14,

um M1, um there there's a bunch of

different other trades out there that

have unique names. The vast majority of

them just have a single structure that's

decaying, providing that income. The

fact that the fly diagonal series,

based on, quite frankly, AI helping me

assemble this, has multiple, either two,

or in the case of the fly diagonal,

three different structures, all

overlapping, providing decay at the same

time. So, I'd say there's really two.

It's

really wide and um

theta bomb. And I guess if I were to

toss a third one in there,

I would say rinse, wash, repeat. In

other words, our goal is to not have to

adjust many of these, get out of them

quickly, capture your 5 10%, which

again, if you capture that in 3 4 5

days, that's over 1,000% annually, and

do it again.

>> And what would be good sources to learn

more about these kind of trades

and kind of structures?

>> Uh if you're talking about these kinds

of trades and structures meaning

butterflies, calendars, and diagonals

separately, there's lots of different

sources out there. If you're talking

about the flyagonal series specifically,

uh I'm your guy. I'm I'm the one that

kind of developed it, if you will, and

have uh promoted. I'm sure there's other

people that have put these structures

together over time. I think what's a

different here is first of all, AI did

help me figure out how to best assemble

them from a strike standpoint, etc. by

doing lots of back testing and analyzing

of my trades. And I think the second

piece of the puzzle here is that we have

a piece of software. It's not my

software. I got no stake in the company,

etc. But the software has been developed

in a way and that it allows you to

manage these. So, I think that's why

while people may have done trades like

this before, I don't think anyone has

really gone to the energy of promoting

them or uh put them out there as an

actual profit engine, if you will,

because they've just been too hard to

manage in the past. But uh Charles

Option Traders Assistant helped me solve

that problem, and we have that tool in

our hip pocket now.

>> Steve, thank you very much for once once

more coming back to Theta Profits and

discuss one of your strategies and this

this was a follow-up of the first

interview I did with you about your Fly

Diagonal and this is

next development of that strategy that

you just launched and brought out there

and it was really inspiring

to learn about this and of course

a lot of the secret I guess is is in the

adjustments, but

I do recommend people to watch the first

interview we did with you. The link is

popping up on the screen right now.

Thank you very much Steve for for

sharing your knowledge with us.

>> Thank you so much. I really appreciate

it and if anybody has any questions,

feel free to email me

steve@optionsincomeacademy.com.

I love hearing from people. Thank you

John, I appreciate it.

>> Thank you.