 Hey everybody, this is Brian and in this video, we're going to talk about how to construct a butterfly with Magic Ape Ball, the stock market prediction engine. If you don't know what Magic Ape Ball is, go ahead and there's a link below, join up and I will see you in there. All right, so what are we talking about here? Out of all those trades, we are talking about the butterfly. It looks something like this. It has low risk to high reward. Now there's a catch as with everything in the stock market, there is a catch. It has to be within this range and the closer you are to center, the more profit you're going to make. So if we just follow a little ball here, you see we're at negative 100 and then once we get into what's called the profit tent, it goes up rapidly. So if we were to pin this thing, we would make $2,300. Butterflies are awesome. They are also very confusing and very complex. Let's dive in and take a look. Let's talk about why you would use a butterfly in the first place. Let's go ahead and let's look at thinkorswim here and let's look at the day. So we've had a couple of down trending days and today's kind of flat. So let's go ahead and jump right into today and sure enough, it's pretty much flat. We can see it's hovering around and around 3940 and change. Let's flip into Magic Ape Ball and see what Magic Ape Ball has got to say. We're going to go down to SPX. Go down to the newest prediction and you can see, ah, yes, node one is 3950 and change. So it is predicting a close of 3947 and long term of 3950. So there's our range between our short term and our long term. So 3945 and 3950, in case you're ever confused and you want a range, that's how you get it in Magic Ape Ball right there. You can also look at the automatically generated chart and you can see the blue line is the prediction and the magenta line is the actual price. So the price is actually lower than the prediction. This is like the perfect time to enter a butterfly and I'll show you why. So we're going to grab this and it says a butterfly is a neutral bias with a center strike and we're just going to copy this, go into thinkorswim, delete that and let's go into our order entry and saved and paste that in, unlock it to get the actual price, which is 195, right click and we're going to analyze this and this is what our butterfly looks like. We're asking $200 to potentially make 719. I'm looking at this little box over here with the numbers changing. Now what we want to do, you see here's where the price is. We want to construct our butterflies so the price is outside and it's going to move in to the profit tent. You can see this magenta line, that's time decay or I should say that's your profit over time. And as the price moves towards 3950, our center strike right there, we will start making money. So this would be the great time to use this. We know the price is going to move into our profit tent based off magic eight balls prediction. Now when would you actually use a butterfly? That is a really tough question to be brutally honest with you because butterflies are very versatile and let me explain why. You're selecting a range, but are you? You can actually turn this into what's called a broken wing butterfly and let's do that. So we're going to grab this strike. This is 3960. We're going to bump that 3965. You see what's happening here. Now it's not symmetrical and we would lose less money and you can actually construct this a little bit differently. So like let's do this right here. What we've done now is a broken butterfly. So if this price rips up and just keeps going up, we're still going to be in profit. This is insane. So it doesn't have to be perfectly symmetrical. So butterflies are very versatile in the sense that you can do a range and try to pin that range a lot like we see here in option strat where you're in this range or you can actually construct it as a broken wing. So it has a directional bias. So if the market just moved up and kept moving, we'd still make money regardless, but we'll make the most money in this profit area. So butterflies are incredibly useful. They're also very, very complex. You can make them extremely small or extremely big. Just know the bigger you go, the more expensive they get. Now one thing you notice right here is this is a debit, not a credit, meaning you have to pay to get into a butterfly unlike the other trades where you actually get money up front. Now I want to take a moment here and do a special shout out to Ernie with ZeroDTE. He actually specializes in butterflies and asymmetric risks. I've actually taken his course and I've been a member of his group and I got to tell you it was mind blowing. It absolutely blew my mind being in his course. So definitely shout out to him and I should note the broken wing butterfly. I learned that from Arianne and the axe group. Their group is nothing short of amazing, here's her video right here, the broken wing and she walks you through in way better detail than I ever could about the broken wing butterfly. So that is when you would use it. The butterfly is what I call the Swiss army knife of trading because you can use it in almost any situation. You can have it as a directional based or you can have it as a say range based where you know exact range. When do you take profit on a butterfly? That is a very tough question and it depends on who you ask. I personally, I just use these as a lottery. I'll throw a butterfly out there and if it makes money, it makes money. If it doesn't, I just let it die a dignified death, but a lot of people will not do that. They'll actually close it. The problem here is taking profit with a butterfly is very confusing. You see this pink line here? If this thing jumped right up to 3950 where Magic Ape Ball Patixas is going to go, we're only going to make $54, but we have a potential. I'm looking at this little black box over here. We have a potential to make almost $800. So if you're a gambling person, this is a really tough one for you because you're looking at that going, I don't want to make $35. I want to make $800. The problem with that is you have to stay in this trade until the end of day to get that full profit or so late in the day that it's almost impossible to get back out of the trade. So there's really two mentalities here. Take profit when you get it, meaning if this thing were to zoom up and you made $30, you take the $30, $40, or the other mentality is ride and die. You just ride this thing right into expiration and try to be in this profit tent here. Now special note, if you're going to do the latter, check out the broken butterflies. So we would do something like this. So if this actually just ripped up and kept going way out of our profit tent, which I've seen happen, it will end up out here somewhere and you'll still make money. Now let's talk about the dark side of the butterfly, when to close. That's a challenging one. You have to pay to get into the butterfly, so you're automatically losing money going into the trade. So you got to really have a strategy and know what you're doing. So you see the price is kind of moving away. Now this is a gut check for you. Our max loss is $200, our max profit is $800. You've already spent the money. If you exit the trade, you have no opportunity for this price to turn around and go back into your profit tent. Days like today, it is really challenging to determine what's going to happen because if we think our butterfly is right here, for example, this thing could go up like Magic Ape Ball predicts and it has previously in the day. If we close that trade, well, that opportunity is gone. However, if the market just starts tanking, the money is pretty much gone. If the price just goes all the way down, there's really nothing you can do to recoup that loss other than open a new trade, which honestly, I wouldn't advise that and a lot of other investors would tell you not to do that as well. You really got to get your head screwed on straight. So when to close this thing, it depends. If you're making money and you're happy with the money, take the money. If you're taking a loss, make sure you can afford that loss and never enter a trade that's richer than what you can afford. Now a special note, you see this pink line, I call it pink, it's actually magenta. This is the current. So if the price is here and I close this now, I'd be at negative $30 versus the blue line, which is end of day, I'd be at negative $200. So if the price just started going away, way, way, I could actually close it and not take a max loss.