4-17 IBKR Platform Tutorial 2 Constructing A PBWB is a video tutorial by Find a Service NOW that aims to guide Interactive Brokers users in constructing a put broken wing butterfly and iron condors structure. While the narrator doesn’t personally use Interactive Brokers, he provides step-by-step instructions on how to navigate the platform and use the strategy builder to execute these options trades. The tutorial covers various aspects such as selecting expiry dates, Delta values, spread prices, and analyzing risk graphs. It offers valuable insights for those looking to effectively use Interactive Brokers for their trading needs.
In this informative tutorial, the narrator walks you through the process of constructing a put broken wing butterfly and iron condors structure using Interactive Brokers’ platform. He emphasizes the importance of selecting the right expiry date and provides clear instructions on how to use the strategy builder to execute these trades. The tutorial also covers key aspects like choosing the appropriate Delta values, determining spread prices, and understanding risk graphs. Whether you’re a beginner or an experienced trader, this tutorial is a helpful resource for utilizing Interactive Brokers effectively in your options trading endeavors.
Introduction
If you’re using Interactive Brokers for your trading needs, you’ve made a great choice! In this comprehensive article, we will walk you through the process of constructing a Broken Wing Butterfly and an Iron Condor using the Interactive Brokers platform. We will provide step-by-step instructions, highlight the benefits of using Interactive Brokers, and give you tips on navigating the platform. Whether you’re a beginner or an experienced trader, this article will help you make the most out of your Interactive Brokers experience.
Overview of Interactive Brokers Platform
Interactive Brokers offers a wide range of benefits for traders. First and foremost, the platform provides access to a vast selection of financial instruments, including stocks, options, futures, forex, and more. This gives you the opportunity to diversify your portfolio and take advantage of various market opportunities.
Additionally, Interactive Brokers offers competitive pricing and low commissions, making it an attractive choice for cost-conscious traders. The platform also provides advanced trading tools and analytics to help you make informed trading decisions. With real-time market data and customizable charts, you can stay up-to-date with market trends and execute trades with confidence.
One key feature of the Interactive Brokers platform is the option chain. The option chain displays a list of available options for a particular stock or index, along with their corresponding strike prices and expiration dates. This tool is essential for option traders, as it allows them to analyze and select the most suitable options for their desired strategy.
Navigating the Interactive Brokers platform is user-friendly and intuitive. With a straightforward layout and easy-to-use interface, you’ll be able to navigate between different windows and access the tools and features you need for your trading activities. The platform also offers extensive educational resources, including tutorials, webinars, and a comprehensive knowledge base.
Constructing a Broken Wing Butterfly
To construct a Broken Wing Butterfly strategy on Interactive Brokers, follow these steps:
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Accessing the Strategy Builder: Open the Interactive Brokers platform and navigate to a new window. Choose the option chain, which will display a list of available options.
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Selecting the expiration date: On the top area of the option chain, you’ll see the expiration dates. Choose the date that aligns with your trading strategy. If you can’t see more expiration dates, click on “More” to view additional options.
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Choosing the strike price: In the option chain, locate the column corresponding to the desired Delta. For example, if you want a 16 Delta, look for the column labeled 16. Choose the strike price to sell.
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Adding the sell leg: Once you’ve selected the strike price to sell, go to the option chain again and choose the strike price to buy.
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Adding the buy leg: Go back to the option chain and select a strike price to buy. It’s recommended to choose a strike price that is approximately five points away from the sell leg.
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Calculating the credit: Determine the credit you want to aim for with your strategy. Typically, a 50-cent credit is a good target. Look for a leg in the option chain that will provide the desired credit difference from your sell leg.
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Submitting the order: Click on “Submit Order” to execute your Broken Wing Butterfly strategy. Review the order details before finalizing the transaction.
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Reviewing the details: After submitting the order, you’ll be provided with details about the strategy. This includes the probability, maximum return, maximum loss, commission, and the credit you aimed for.
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Analyzing the risk graph: The Interactive Brokers platform provides a visual representation of the risk graph for your Broken Wing Butterfly strategy. You can adjust the graph to simulate different market scenarios by specifying the percentage move or selecting a specific date.
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Selecting a specific date: If you want to analyze the strategy’s performance on a specific date, navigate to the interactive risk graph and select the desired date. This will generate the theoretical pricing and show you how the strategy would perform on that date.
Clearing Legs and Making Changes
If you want to clear all legs of your strategy, you can do so quickly by clicking on the “Clear All” button. This will remove all legs from your order and allow you to start fresh.
If you want to make specific changes to the strike prices of your strategy, click on the relevant leg in the order window and modify the strike price accordingly. This flexibility allows you to adjust your strategy based on market conditions and your desired risk/reward profile.
Constructing an Iron Condor
To construct an Iron Condor strategy using Interactive Brokers, follow these steps:
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Understanding an iron condor: An iron condor is a neutral options strategy that involves selling both a call spread and a put spread. This strategy profits from sideways movement in the underlying asset.
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Selecting the expiration date: As before, choose the expiration date that aligns with your trading strategy.
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Choosing the strike price: In the option chain, select the desired Delta for the call side (e.g., 16 Delta). Choose the strike price to sell and create the call spread for the “C” side of the Iron Condor.
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Adding the sell leg: After selecting the sell leg for the call spread, choose the spread width. Typically, a five-point spread is a common choice, but you can also adjust the width based on your risk profile and trading preferences.
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Adding the buy leg: Proceed to the put side on the option chain and locate the desired strike price based on the Delta (e.g., 16 Delta). Select the sell leg for the put spread, and choose the spread width, similar to step 4.
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Calculating the credit: Determine the credit you want to aim for with your Iron Condor strategy. This credit represents your potential maximum profit. Look for the leg in the option chain that will provide the desired credit when selecting the sell legs.
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Submitting the order: Click on “Submit Order” to execute your Iron Condor strategy. Review the order details to ensure accuracy.
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Reviewing the details: After submitting the order, review the details provided by the platform. This includes the probability, maximum return, maximum loss, commission, and the total credit received.
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Analyzing the risk graph: The Interactive Brokers platform will generate a risk graph that visualizes your Iron Condor strategy. This graph allows you to assess the potential profit and loss at various price levels.
Conclusion
Interactive Brokers offers a powerful platform for traders looking to execute complex options strategies. Whether you’re constructing a Broken Wing Butterfly or an Iron Condor, the platform provides the necessary tools and resources to make informed decisions. By following the step-by-step instructions outlined in this article, you’ll be able to navigate the Interactive Brokers platform with ease and take advantage of the many benefits it has to offer. Remember to always practice responsible risk management and continually educate yourself to become a successful trader.