The Time Bomb Butterfly: A Cheap Speculative SPX Options Trade

Dan Sheridan spent many years in the CBOE trading pits in Chicago. One of his favorite trades from those days is the time bomb butterfly: a cheap, speculative shot that pays off if the market lands in a chosen zone by expiration. With SPX around 6,800, he modeled one for about $80.

The video is a short introduction to the trade. Dan builds one example in Option Omega’s modeling tool to show how he uses the expected move to place the landing zone, and why he sizes these differently from his rangebound trades.

What a time bomb butterfly is

A time bomb butterfly is a short-dated butterfly placed away from the current price, where the trader thinks the market might end up. It’s cheap because it’s a few days from expiration and out of the money. If SPX finishes outside the long strikes at expiration, the debit is lost. If SPX lands in the zone, the payoff can be large compared with the debit, and it’s largest at the short strike.

Dan’s view is that these are not wild lottery tickets. Placed sensibly, using the expected move, they have a reasonable chance of coming into play. He calls it the cheapest way he knows to take a good shot, and generally the highest-yield way to do it.

The market context

Dan recorded the example on Monday, April 13, 2026, with SPX around 6,815. Some context he gave:

• SPX had rallied about 500 points over the previous two weeks, which he put at about 8%.
• Futures were up roughly 70 to 80 points from the overnight session into Monday.
• The expected move, or one standard deviation, to Friday was a little over 100 points.

As Dan explained it, one standard deviation means about a 68% probability SPX finishes within that range on Friday. With SPX at 6,815, that is roughly 100 points either side, give or take a few points.

With that backdrop, Dan placed his cheap shot below the market. He was clear that this is a small speculative position, not one sized like his rangebound trades.

Building the trade

Dan used Friday, April 17, four days out, and placed the butterfly below the market but inside the expected move.

Leg	Strike	Notes
Buy 1 put	6770	20 points above the short strike
Sell 2 puts	6750	About 30 delta (28 on screen), about 65 points below SPX
Buy 1 put	6730	20 points below the short strike
Expiration	Friday, April 17, 2026	4 days out
Cost	About $70 to $80	The full risk of the trade

The logic of the strikes:

• A 100-point expected move would put SPX near 6,715 on the downside. The 6750 short strike sits inside that, about 65 to 70 points below the market.
• Dan reads the 30-delta short put as roughly a 30% probability SPX finishes below 6750.
• The long puts 20 points either side cap the risk and make the trade cheap.

Watching the payoff grow

Modeling the trade in Option Omega shows why it is called a time bomb. Stepping the model forward from Monday to Tuesday, Wednesday, Thursday and then Friday, the peak around the short strike rises.

Dan’s description is “Here comes the sun.” In the model, each day closer to expiration, the butterfly’s value in the landing zone grows. If SPX is in that zone on Friday, the small debit can be worth many times what it cost.

The four-day window does two things here: the short duration keeps the cost low, and the modeled payoff builds quickly near the end.

Moving the landing zone closer

Dan noted the landing zone can go wherever the trader wants it. He showed a second version closer to the market, with SPX around 6,820 by then.

Leg	First version	Closer version
Upper long put	6770	6790
Short puts (x2)	6750	6770 (33 delta)
Lower long put	6730	6750
Cost	About $70 to $80	A few dollars more; Dan cites about $95 total risk

Moving everything up 20 points brings the zone closer to the market. The top of it is only about 30 points below the market, and the zone between the long strikes is 40 points wide. Dan called that “a nice area.”

Is it realistic?

To check, Dan looked at the delta of the 6770 short put: 33. His reading:

• About a 33% probability SPX finishes below the short strike.
• About a 66% probability SPX touches it, or gets near it, before expiration.

For a speculative trade costing under $100, he thinks that is a reasonable profit area.

Layering time bombs

Because each butterfly is cheap, Dan said he could plant more than one. He mentioned placing them at different strikes, or adding one above the market if SPX keeps rising. Each would be a separate small bet on a different landing zone. He left the details of that for another conversation.

Sizing a speculative trade

The cost of the butterfly is the total risk. In the closer version, Dan’s total risk was about $95. If SPX rallies instead of falling, that’s what the trade loses.

That’s why Dan stresses sizing on these trades. He doesn’t put the same capital into them that he puts into rangebound trades. The question he asks on a spec trade: what am I willing to lose?

Key takeaways

• A time bomb butterfly is a cheap, short-dated SPX butterfly aimed at a landing zone away from the market.
• Dan uses the expected move to place it. In his example, the move was a little over 100 points over four days.
• His first version (short two 6750 puts, long 6770 and 6730) cost about $70 to $80. Moving it 20 points closer cost a few dollars more.
• In the model, the value in the landing zone grows as Friday approaches.
• A 33-delta short strike, in Dan’s reading, means about a 66% chance SPX touches the short strike.
• Dan sizes it as a speculative trade, smaller than his rangebound trades. The debit is the full risk.

Model your own time bomb

You can build this exact butterfly in Option Omega’s modeling tool and step the date forward to see how the payoff changes. For a different take on long-premium SPX butterflies, see the McRib iron butterfly backtest. When you want to see how an idea held up over time, backtest it.

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Watch the full video: The Time Bomb Butterfly: A Cheap Speculative SPX Options Trade.

This post summarizes a conversation from April 2026 and is educational only. Options trading involves substantial risk.