Are you an options trader looking for a bullish, low-risk strategy with a high win rate? The 21 DTE Put Broken Wing Butterfly is a proven and repeatable options strategy designed to deliver consistent returns while managing risk effectively. This comprehensive guide covers everything you need to know about this powerful options trade, ideal for traders seeking defined risk and steady profit potential.
What is the 21 DTE Put Broken Wing Butterfly Strategy?
The 21 DTE (Days to Expiration) Put Broken Wing Butterfly is a bullish options strategy that involves selling and buying put options in a specific ratio and strike placement to create a “broken wing” butterfly spread. Unlike traditional butterfly spreads which have symmetrical wings, the broken wing butterfly shifts one wing farther out, eliminating upside risk and focusing on defined downside risk.
Key Benefits:
- High probability of winning about 80% of the time
- Defined risk with no naked option exposure
- Profitable if the market stays steady or moves higher
- Flexible management with profit-taking and stop-loss options
Why Choose 21 Days to Expiration (DTE)?
Choosing an expiration roughly 21 days away provides an optimal balance between time decay and trade volatility. Shorter durations increase volatility and loss potential, while longer expirations slow down time decay and delay profits. The 21-day window offers enough premium decay for timely exits while maintaining reasonable price stability, making trade management more straightforward.
How to Select Strikes and Target Premium
Strike selection typically involves setting the option strikes well out of the money. The “broken wing” effect is achieved by setting the higher protective put at half the distance of the lower one, for example, 25 points on the narrow side and 50 points on the wide side. This setup controls risk effectively.
Premium collection aims for 12% to 15% of the width of the narrow wing—for example, $3 to $3.75 credit on a 25-point wing. This premium range balances rewarding returns with an acceptable risk profile.
Trade Management: When to Exit or Cut Losses
Take Profit: Set an automatic take-profit order to buy back the position when the premium decays to 2% of the original credit, usually around 7 days before expiration.
Stop Loss: Place a stop-loss order at approximately twice the premium collected to limit losses if the market moves sharply against the trade.
Rolling: Traders may choose to roll losing trades by adjusting strikes and expiration, though this doubles the maximum risk and adds complexity, so simpler stop-loss management is often preferred for consistency.
Risk Level and Who This Strategy Suits
Rated about a 5 on a 1-to-10 risk scale with active management, this strategy suits traders who want a defined-risk, bullish approach with a high probability of success. It’s ideal for those who prefer a disciplined trading style and like to enter trades during market dips rather than at all-time highs, adding a contrarian element to their portfolio.
Best Underlyings: Index Options and ETFs
This strategy mainly uses liquid index options such as the SPX (S&P 500 Index) for its simplicity and stability. It can also be adapted for ETFs like SPY or QQQ, making it versatile across different markets.
Historical Performance and Win Rate Insights
In bullish markets, the 21 DTE Put Broken Wing Butterfly has produced impressive winning streaks, including runs of 26 consecutive wins. Using stop losses may reduce the win rate from about 80% to closer to 70%, but significantly reduces large losses and enhances overall profitability.
Learn More and Deepen Your Options Knowledge
For detailed trade examples and strategy insights, visit datadrivenoptions.com, a top resource for broken wing butterfly traders. To further enhance your options trading expertise, consider the book “McMillan on Options,” a comprehensive and technical guide considered essential by many professional traders.
Conclusion: A Reliable Strategy for Steady Options Income
The 21 DTE Put Broken Wing Butterfly is a strategic, defined-risk bullish trade designed to capitalize on time decay and disciplined management. Its high win probability, clear risk limits, and adaptability to market conditions make it a smart choice for options traders seeking consistent returns with controlled risk.
Start integrating the 21 DTE Put Broken Wing Butterfly into your options trading arsenal to benefit from its structured approach to profits and risk control.
