Find Upside Trade ‘Nuances’ With Butterfly Plays


Simpler Trading Team

4 min read

Traders received a bit of holiday cheer on Friday as the stock market turned a lumpy start into a day of positive gains.

The rebound after a mid-week pounding didn’t bounce very high, but it was enough to be considered a welcome gift heading into the three-day Christmas break. The stock market is closed Monday in observance of the holiday.

There has been little balance in this market with fast rallies and sharp declines being the “norm” for months.

In the near term, the team at Simpler Trading continues to identify nuances in market movement that can lead to potential trade setups.

Options with Sam Shames
Futures with Neil Yeager
Fibonacci & Voodoo with Henry Gambell

Simple moving average key to chart analysis

Following a steep sell-off on Thursday, the stock market rebounded Friday with solid gains across the board.

In the market today, the Dow closed at 33,203.93 points to gain .53% (adding 176.44 points on the day). The Nasdaq reached 10,497.86 points for a .21% lift while the S&P 500 was positive by .59% to 3,844.82 points.

Constant shifts higher or lower have made trading difficult for even the most seasoned pros. Simpler’s traders have turned to stock chart technical analysis matched with more complex setups to find trade opportunities.

Henry Gambell, Senior Managing Director of Options Trading at Simpler Trading, acknowledges that it is tough to find breakouts in price movement in this market.

He has found some nuances in price movement in stocks other traders may not consider such as Caterpillar, Inc. (CAT), McDonald’s Corp. (MCD), and Lockheed Martin Corp. (LMT). Charts for these stocks have shown a decent rise in price followed by consolidation that leans toward a move higher after a slight pullback.

Henry pointed out how he watches and waits for the nuance of the 50-day simple moving average (SMA) to catch up to a move higher on a stock chart.

“That’s the spot where I think it’s going to be a little bit easier for those prices to head higher, especially if we can start to get some help from the S&P 500,” Henry said. “That’s a way I feel you can be more careful.”

The S&P 500 (SPX) has struggled this year, down more than 19% since January.

This downtrend pushes traders to track positive nuances in stocks showing strength.

“The key is to look at these charts with an extra degree of patience and see if we can get some of these bullish setups to play out for us into the beginning of 2023,” Henry said.

Butterfly setups target balanced trades

As he keys on these bullish nuances, Henry turns to setups that favor a balanced opportunity for returns. A favorite target for Heny is the SPX using butterfly setups.

“There are hundreds of ways to configure these spreads,” said Henry.  

The goal with a butterfly setup, Henry explained, is not necessarily to get homerun-level wins, but to get consistent base hits that add capital to the trading account.

“You don’t need to maximize a butterfly to make good money,” Henry said.

He still sees the path of least resistance in this market leaning lower across the board.

“The easiest trades will come when your individual equity picks are in alignment with the market,” Henry said. “Right now the market is in a little bit of a tumultuous time.”

Henry regularly shares his trading setups and how he finds opportunities during live trading in the Simpler Options online chat room. For more on Henry and butterfly setups, get access today.