How To Get Safe Income During This Crash

When volatility spikes, as it did yesterday following the reveal of the President’s new import taxes, “tape bombs” appear everywhere. As a trader and long term investor, when that happens I zoom out in the charts.

There are times in the markets where risk becomes more outsized, and this is one of those times. Size down, slow down becomes my mantra. Capital preservation becomes key.

There are option trades that let you do just that – preserve capital, wait out the churn, while still making some options income.

Here’s how to ignore the market chaos and position yourself for profits.

We’re going to target ONEOK Inc. (NYSE:OKE) today, with a long call butterfly. This kind of option trade is the combination of a long call spread, and a short call spread that share the same short strike and the same expiration date.

We’re positioning the option trade well into the future (using a bullish position that gives us time to wait out the sideways churn ahead), which is why it’s termed a “leap” trade.

OKE’s relative resistance zone sits right around $120, but trading could be choppy for many months with market uncertainty. Set an alert for prices near this middle strike so that you are very aware of the motion into the middle strike as this is where the maximum profit will engage into expiration. You will also notice that price action is less sensitive to fluctuation the further we are from expiration. OKE’s support sits near $88.

The beauty of a leap butterfly is that time decay becomes largely irrelevant, so we can wait out the noisy bits in the market as we recover. Here’s the trade, positioned for upside:

• Buy to open 1 OKE 18 Jun 2025 105 calls 
• Sell to open 2 OKE 18 Jun 2025 120 calls 
• Buy to open 1 OKE 18 Jun 2025 135 calls 

The long call butterfly holds a current debit of $2.38 at this writing and that represents the total risk incurred in the trade. The breakeven price of the stock at expiration on this trade is $107.38 + commissions.

The total highest potential profit is $15 (the distance between 105 and 120) less the cost of the debit incurred by buying the call butterfly: $15 minus $2.38 = $12.62 less commissions. 

It is extremely rare to collect all this premium in this kind of butterfly. Instead, I like to consider 40%-90% profit of the longer-term investment. Also keep in mind that these leaps have favorable tax implications.

This strategy provides for several ways to exit, but these are the two main ones:

1. To sell the call butterfly when the profit goal moves into your target parameters-particularly once the middle strike is tested near the expiration time. I often look for 40%-90% return for these types of call butterflies with strikes deep in the money. 
2. To sell the call butterfly when your loss threshold is breached. Customarily, this is 50% for me. 

Remember to size down as markets fluctuate – it is more important to focus more on what we can lose than on what we can make.

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