Explore Your Options by Tom Gentile
TAKING STOCK OF A BROKEN WING
If Iím bearish on a stock but wish to own shares at lower levels, would an out-of-the-money (Otm) long put broken butterfly through assignment be a win-win spread to consider? I like the idea of participating in larger dollar-priced stocks such as Google (Goog) or Apple (Aapl) for a credit with these two linked but somewhat different objectives in mind. At the same time, I am not completely sure of all the risks involved. Any light you shed on this would be greatly appreciated.
Designing an OTM broken butterfly can serve both your stated objectives of profiting on a bearish move in share price and build a long stock position at lower prices. However, there are no guarantees that if the former condition is met, the other condition of assignment will result in a profitable starting point for accumulating shares.