Ratio-to-Butterfly: Flag-Based Premium Harvesting“Most people hunt the kill.
But the ones who build the terrain?
They eat forever.”
Purpose: Capitalize on clean trend support and structure with a low-cost entry that allows you to harvest premium before the breakout, and optionally tighten the structure to a butterfly when the breakout becomes likely.
Base Strategy: Short Put Ratio Spread
Example: +1 31P / -2 30P (AAAU)
Entry credit: ~$1.44
Structure: 27 DTE, high POP (>99%)
Reason: Price near support, low probability of hitting short strike
Theta-driven profit engine with low directional pressure
Conversion Strategy: Butterfly Overlay
Trigger: Price begins to drift toward the short strike, or flag tightens near inflection
Move: Buy 1 lower put (e.g., 29P) to convert ratio into butterfly
Structure: +1 31P / -2 30P / +1 29P
Result: Caps downside risk and tightens profit zone
Exit: Max profit if price pins near short strike at expiry
Psychology of the Setup:
"Start with the house's money, then shape the bet." You’re not chasing the move — you’re pre-positioned. Use the casino’s chips (credit from wide ratio) to build structure that pays on drift, stall, or controlled breakout.
Ideal Conditions:
Price near clean structural support
Flag forming above key moving average (e.g., 200D)
IV elevated but not extreme
No bid or low open interest on short leg = market not pricing breakdown
Exit Scenarios:
Full hold: Price stays above both strikes → keep full credit
Mid-cycle flatten: Price begins drifting → convert to butterfly
Spike or fail: Close early for partial gain, roll if needed
Repeatability Score: ✅✅✅✅☆ This setup is ideal for weekly/monthly cycles, ETF swings, and earnings coil plays where clean structure exists.
