What happens when a sharp 71-point drop pushes your butterfly trade right past your exit loss trigger? Most traders panic and close the position, often right at the bottom. In this lesson from Trading with the Pros, John Locke shows how the butterfly lockdown strategy let him keep his risk small, wait out the drop, and still finish the trade with a normal high profit.
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What Is the Butterfly Lockdown Strategy?
When a butterfly comes under pressure on the downside, many traders roll it back again and again, chasing the price lower. The butterfly lockdown strategy works differently. Instead of rolling back, John treats the downside as a “lockdown” situation. He makes adjustments that steadily reduce total risk in the position while keeping the trade positioned to profit from a bounce.
In other words, the goal is not to predict the exact bottom. The goal is to make sure that, wherever the bottom is, the trade can survive it and recover.
The 71-Point Drop That Could Have Ended the Trade
In the example, the market took a fast 71-point shot down. As John put it, a move like that “could kill me if I’m in trouble with a butterfly.” But because he had already locked down his risk, the drawdown was manageable. He wasn’t letting the move freak him out.
Why the confidence? His weekly chart showed the market had reached a high-probability bounce area. The deep move had been part of the original plan, so this was a scenario he was already prepared for.
Past the Exit Loss Trigger, But Not Taking Irresponsible Risk
On a normal trade, John would have been past his exit loss trigger. However, his total risk in the position was small and contained. For the worst case to happen, the trade would have to expire at a bad level or the market would have to fall much further. With 32 days left until expiration, that wasn’t a real concern.
“I’m over my exit loss trigger, but I’m not taking any irresponsible risk in waiting this out.”
John Locke
This is the key idea behind the butterfly lockdown strategy. An exit loss trigger is a guideline. Your total risk and your location on the chart matter just as much.
The V-Reversal and What to Do Next
Then the hard reversal came in. Once the market recovered, John had several choices:
- Exit the trade and treat it as a close call that turned out fine.
- Hold the position with a trailing stop to protect gains.
- De-risk and hold toward the expected move.
He chose to stay in. As the recovery continued, he rolled up the lower long option to take more risk out of the trade. Each step lowered the total risk while leaving room for more profit.
Never Exceed Your Big-Loss Number
Throughout the trade, one rule never changed. No matter how long John waited, he never let the position exceed his big-loss number. He knew exactly how much he was risking at every stage. As a result, he could hold the trade with confidence rather than hope.
In the end, he held the trade to his exit date and made a normal high profit. In this case, the lockdown approach was very beneficial.
Key Takeaways for Options Traders
- Being past your exit loss trigger doesn’t always mean you must exit, as long as your total risk is contained.
- Use weekly charts to identify high-probability bounce zones before you decide to wait.
- Lock down risk step by step instead of chasing price lower with rollbacks.
- After a reversal, de-risk by rolling up the lower long so your downside keeps shrinking.
- Always know your big-loss number and never go beyond it.
Does the Lockdown Strategy Always Work?
Not always. In the 15-minute lesson, John walks through a second example where the exact same approach fails at a long-term market top. He explains why market context changes everything and what to do when it happens. To watch it, join our Explore More and Sustain membership on YouTube.
Ready to learn options trading with up to 5 hours of live trader coaching every week? Explore the Locke In Your Success Trading Community membership. Basic membership is FREE!.
Disclaimer: This content is for educational purposes only. We are not broker-dealers or financial advisors and are not making specific trade recommendations. Trading involves substantial risk, and past or hypothetical results do not guarantee future performance.
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