By the numbers · Options
A Butterfly Spread Is the Cheapest Way to Be Precisely Right
When you have a precise price target and a date, a butterfly buys that view for a small, fixed debit; wrong targets cost only the debit.
4 min read
Market overview
Trading and investing education, with the math left in
Share offerings, options spreads, swing setups, prop firm rules, dividend cuts, earnings reactions and the economy, each worked through on hypothetical numbers you can swap for your own.
Topic map
All topics →- Investing A first portfolio, position weights, buybacks, valuation models and the drag volatility puts on returns.
- Economics Market cycles, regimes, jobless claims, PMI orders, the economic calendar and what each means for stocks.
- Stock Trading Share offerings, dilution, averaging down, screeners and the rules you set before an order goes in.
- Earnings Earnings calendars, guidance, estimate revisions, pre-announcements and the overnight gap a report can cause.
- Swing Trading Trades held for days to weeks: relative strength, pullbacks, sector leaders and testing a method before trusting it.
- Options Past the single call and put: spreads, calendars, diagonals, butterflies and what a buyout does to a contract.
- Dividends Dividend income, coverage, cuts, stock dividends and rebuilding the income when a payout shrinks.
- Prop Trading Funded accounts, evaluation rules, payouts, resets and the losing streak a drawdown limit has to survive.
Latest
All walkthroughs →-
Walkthrough · Investing
Dutch Auction Tender Offer: How It Works for Holders -
Lesson · Swing Trading
Market Leaders in Different Sectors: How to Find Them -
Walkthrough · Investing
Dollar-Cost Averaging Through a Full Market Cycle -
Walkthrough · Economics
Economic Data Revisions: Why the Previous Number Changes -
Walkthrough · Earnings
Guidance Cut Priced In? How to Check Before You Sell -
Walkthrough · Earnings
Guidance Midpoint vs Consensus: How to Compare Them -
Walkthrough · Earnings
Guidance Cut Meaning: What a Lowered Outlook Says -
Walkthrough · Economics
Market Cycle Indicators: A Checklist for Beginners -
Walkthrough · Investing
Tender Offer Proration: How It Works, With an Example -
Walkthrough · Investing
Tender Offer vs Open Market Repurchase: How They Differ
Latest viewpoints
All viewpoints →-
By the numbers · Prop Trading
A Prop Firm Payout Comes Out of Your Drawdown Cushion -
House rules · Swing Trading
A Pullback on Low Volume Is the Only Kind Worth Buying -
Myth check · Options
A Ratio Spread Hides a Naked Option in the Fine Print -
The case · Stock Trading
An At-the-Market Offering Sells Into Every Rally -
By the numbers · Stock Trading
Averaging Down Moves Your Break-Even Less Than You Think -
By the numbers · Investing
A Buyback Only Helps When the Share Count Actually Falls
Calculators
All calculators →- Share Dilution CalculatorYour ownership percentage and earnings per share after a company issues new shares, and the dilution in each.
- Buyback EPS CalculatorEarnings per share after a buyback shrinks the share count, net of any new shares issued at the same time.
- Position Concentration CalculatorThe weight of each holding and sector in your portfolio, and what a fall in the largest one does to the total.
- Earnings Gap Loss CalculatorWhat an overnight gap of 5%, 10% or 20% does to a position, in dollars and as a share of your account.
- Volatility Drag EstimatorWhy equal gains and losses leave you behind, and the compound return a run of ups and downs really produces.
- Dividend Cut CalculatorAnnual income before and after a dividend cut, the new yield on cost, and the capital needed to replace the lost income.
- Average Down CalculatorYour new average cost after buying more shares lower, with fees, and the price the stock must reach to break even.
- Losing Streak CalculatorWhat a run of losing trades does to an account at different risk levels, and how long a streak a drawdown limit survives.
Free courses
All courses →-
Investing · Beginner
Mise en Place for Money: A Beginner Portfolio CourseSavers who have money in the bank and no portfolio yet, and want the plan settled before they buy a first fund or stock.
About 50 minutes, free
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Economics · Beginner
Boom, Bust, Repeat: A Course on How Markets CycleInvestors and traders who want to understand why stock prices and the economy turn at different times, and what to do about it.
About 49 minutes, free
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Economics · Beginner
Macro Weather for Stock Pickers: Economic Data and StocksStock investors who see the economic calendar every week and want to know which releases should change how they look at their own holdings.
About 50 minutes, free
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Earnings · Intermediate
Beat, Raise and Still Drop: An Earnings Reaction CourseTraders and investors who hold stocks through quarterly reports and want to understand why the reaction so often disagrees with the headline.
About 51 minutes, free
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Investing · Intermediate
What's It Actually Worth? A Stock Valuation CourseInvestors who read P/E ratios on a quote page and want to build and defend their own estimate of what a stock is worth.
About 54 minutes, free
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Swing Trading · Intermediate
Musical Chairs for Sectors: Following Market LeadershipSwing traders and active investors who pick individual stocks and want to choose which part of the market to hunt in first.
About 53 minutes, free
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Options · Intermediate
After the Covered Call: Option Spreads, Step by StepTraders who understand single calls and puts, hold spread approval on their account, and want defined-risk trades they can size in advance.
About 53 minutes, free
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Stock Trading · Intermediate
Rules First, Money Later: Test a Trading StrategyTraders with a stock trading idea they want to test on price history, then on paper and at small size, before putting real money behind it.
About 53 minutes, free
Walkthroughs
All walkthroughs →- AnsweredDutch Auction Tender Offer: How It Works for Holders
- AnsweredDollar-Cost Averaging Through a Full Market Cycle
- AnsweredEconomic Data Revisions: Why the Previous Number Changes
- Step by stepGuidance Cut Priced In? How to Check Before You Sell
- Step by stepGuidance Midpoint vs Consensus: How to Compare Them
- AnsweredGuidance Cut Meaning: What a Lowered Outlook Says
- Step by stepMarket Cycle Indicators: A Checklist for Beginners
- AnsweredTender Offer Proration: How It Works, With an Example
Games and quizzes
All games →- GameBuild It, Then Break It: A Portfolio Stress Test Game
Whether you can hold a portfolio through made-up shocks by rebalancing to a rule, without panic selling or chasing the latest winner.
- GameGrade the Decision: A Stock Trading Practice Game
Whether you can choose an entry, a stop and a share count that fit a swing setup and a written risk rule, and judge a trade apart from its result.
- GameRisk-On, Risk-Off or Sit Tight? A Market Regime Game
Whether your risk decisions follow a written plan and the evidence in front of you, and whether you can resist chasing the last move.
- QuizSignal or Static? A Stock Market News Quiz
Whether you can tell a headline that changes a company's earnings outlook from one that is mostly noise, and say what would make it matter.
- QuizWhat Mattered in That Quarter? An Earnings Report Quiz
Whether you can find the line in an earnings release that explains the price reaction, past a headline beat or miss.
- QuizWhere Did the New Shares Come From? A Stock Dilution Quiz
Whether you can trace a change in a company's share count to its source, from offerings and warrants to stock pay and buybacks.
From the dictionary
Full dictionary →Convertible notesDefensive stocksDiagonal spreadDistribution dayDividend coverage ratioEarnings estimate revisionsEarnings gapEarnings pre-announcementEarnings yieldEqual-weight indexFollow-on offeringFully diluted sharesInitial jobless claimsMarket regimeMinimum trading daysRelative strength lineShelf registrationStock dividendSynthetic long stockTerminal valueTreasury stock methodVolatility term structure
Numbers you can check
Most trading decisions come down to a sum somebody skipped: the earnings per share after the new stock is issued, the average cost after the third purchase, the account balance after a run of losing trades. Each page here does that sum in the open on a hypothetical position, so the method carries over to yours.
Start with the topic map if you know the subject, the walkthroughs if you have a specific question, or the free courses if you want to learn a subject in order. The editorial policy explains how pages are drafted, checked and corrected.