Ask the Crew:
Crew members tackle questions submitted by readers each month

Q: Karson recently posted (that) he was happy to hear about several folks who made a profit on the AAPL trade by “legging out.” What does this mean and how do you do it?

A: Legging out means they closed on part of the position at a time. So when AAPL got to a low, they closed the put side at a high price and then when AAPL got to a high, they closed the call side of the trade. This way they were able to get top dollar for each piece of the trade. (The people I was referring to used the indicators to help them make the right decisions.)

Q: Curious about your recommendation on the limit price (or going with market) for long butterflies. I have found that there is quite a big spread between bid and ask. When buying or selling these butterflies, where should we set the limit price between the bid-ask spread to strike a balance between ensuring the trade executes and maximizing profits?

A: I usually put a limit order in at a slightly worse price then the mid-point. It usually takes about 5-10 minutes to fill my position, but a little patience usually pays off.

Q: Regarding ‘Collars’ on the selling call side, how do you determine the strike and the month? Could you do this on weeklies?

A: You could certainly do this on the weeklies. I usually like to get 4-6 chances to sell premium. So on the weeklies I will go about 6 weeks out to buy my put and sell calls each week up to then.

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