A great strategy for option traders who believe that the underlying instrument they are working with will be range bound for the next 2 or 3 weeks to a month or so of time is the Butterfly Spread.
It is also a great options trading strategy to use when making iron condor adjustments to help with saving an iron condor trade when one of these spread trades start to go bad. There are many option income traders who think that adjusting iron condor trades are futile and that the trade should just be closed out when it gets into trouble. This is definately not the case as these trades can absolutely be saved and even make more in profits when the correct iron condor adjustment is used - for example the butterfly spread trade.
This theta positive option trading method produces profits when the stock or index that is getting traded remains within a contained area on the graph or ends up on expiration day at or near the sold strikes of this trade.
Here is a trade illustration of this strategy:
Buy 5 contracts of QQQQ 44 put. Sell 10 contracts of SPY 105 calls. Purchase 5 contracts of SPY 110 calls.
These trades can generate quick gains for the investor due to the fact that the short strikes of the position (the strikes which are sold) deliver so much premium into the traders account for the reason that they are being sold 'at the money'. The At The Money strikes are the strikes that have the greatest amount of time premium in them.
While there are numerous variations of the butterfly strategy, the two most common are the regular butterfly spread which are put on for a debit, and the iron butterfly, which is placed for a credit. While these are two different versions of the butterfly spread, if you were to look at the risk graphs of each they look identical and for the most part they act identical as well. With both versions of this strategy, it is the sold strikes that deliver profits to the trader, as those short options decay in value the fastest over time.
The butterfly method is a 'delta neutral' trade, meaning that investors who use this technique either don't have an opinion on marketplace direction or believe that the underlying being traded will remain in its general vicinity on the price chart for the duration with the trade.
When traded correctly, the butterfly spread trade can be an very profitable, low tension, and quite enjoyable trade that like other similar trades, needs very little time and energy to manage.
Also remember that these types of option trades are ideal for making dependable iron condor adjustments when an iron condor position starts to move against you. Also, it is interesting to note that a version of the butterfly spread trade that is called the 'Iron Butterfly' is actually an iron condor trade itself. What is different about this iron condor from the normal iron condor we are all used to, is the distance between where the short strikes are sold - either at the same strike price as is the case with the Iron Butterfly - or a good distance away from each other like what is done with the 'normal' iron condor trade.
If you are looking to learn a consistent way to generate income from the market - or if you wish to learn how to make effective iron condor adjustments - take some time to learn the butterfly option spread trade.
It is also a great options trading strategy to use when making iron condor adjustments to help with saving an iron condor trade when one of these spread trades start to go bad. There are many option income traders who think that adjusting iron condor trades are futile and that the trade should just be closed out when it gets into trouble. This is definately not the case as these trades can absolutely be saved and even make more in profits when the correct iron condor adjustment is used - for example the butterfly spread trade.
This theta positive option trading method produces profits when the stock or index that is getting traded remains within a contained area on the graph or ends up on expiration day at or near the sold strikes of this trade.
Here is a trade illustration of this strategy:
Buy 5 contracts of QQQQ 44 put. Sell 10 contracts of SPY 105 calls. Purchase 5 contracts of SPY 110 calls.
These trades can generate quick gains for the investor due to the fact that the short strikes of the position (the strikes which are sold) deliver so much premium into the traders account for the reason that they are being sold 'at the money'. The At The Money strikes are the strikes that have the greatest amount of time premium in them.
While there are numerous variations of the butterfly strategy, the two most common are the regular butterfly spread which are put on for a debit, and the iron butterfly, which is placed for a credit. While these are two different versions of the butterfly spread, if you were to look at the risk graphs of each they look identical and for the most part they act identical as well. With both versions of this strategy, it is the sold strikes that deliver profits to the trader, as those short options decay in value the fastest over time.
The butterfly method is a 'delta neutral' trade, meaning that investors who use this technique either don't have an opinion on marketplace direction or believe that the underlying being traded will remain in its general vicinity on the price chart for the duration with the trade.
When traded correctly, the butterfly spread trade can be an very profitable, low tension, and quite enjoyable trade that like other similar trades, needs very little time and energy to manage.
Also remember that these types of option trades are ideal for making dependable iron condor adjustments when an iron condor position starts to move against you. Also, it is interesting to note that a version of the butterfly spread trade that is called the 'Iron Butterfly' is actually an iron condor trade itself. What is different about this iron condor from the normal iron condor we are all used to, is the distance between where the short strikes are sold - either at the same strike price as is the case with the Iron Butterfly - or a good distance away from each other like what is done with the 'normal' iron condor trade.
If you are looking to learn a consistent way to generate income from the market - or if you wish to learn how to make effective iron condor adjustments - take some time to learn the butterfly option spread trade.
About the Author:
While www.ironcondoradjustments.org can be a great way to generate income, of course like any investment there are potential pitfalls one should be aware of before jumping in. To learn more about iron condors visit our site.
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