A great system for option traders who feel the underlying instrument they're working with will probably be range bound for the next 2, 3, or 4 weeks of time or so is the butterfly spread .
This theta positive option strategy produces profits when the stock or index that is being traded remains within a contained range on the graph or ends up on expiration day at or near the short strikes of the trade.
Here is an illustration of this tactic:
Buy 5 contracts of SPY 100 calls. Sell 10 contracts of SPY 105 calls. Purchase 5 contracts of SPY 110 calls.
These trades can generate quick gains for the investor as a result of the short strikes in the position (the strikes that have been sold) providing so much premium into the traders account. This is because the strikes that are usually sold in these trades are the 'at the money' strikes - or the strikes that reside closest to where the underlying is actually trading at when the trade is first put on. The 'at the money' strikes always contain the most amount of time premium, which is what option traders are looking to benefit from when trading these type of income positions.
While you can find numerous mutations of the butterfly spread, the two most popular are the standard butterfly distribute which is traded for a debit, and then there's the iron butterfly, which is put on for a credit. It is true that these two individual versions of the butterfly spread are indeed different, if you would look at the risk graph of one and then compare it to the other, they would look exactly the same, and they actually perform the same as well.
The butterfly option strategy is a 'delta neutral' strategy, meaning that investors who use this technique do not have an opinion on market direction or believe that the underlying being traded will remain in its general location on the chart for the duration of the trade.
With the proper knowledge, the butterfly spread can be a lucrative, low pressure, and pleasant investing system that doesn't require one to be glued to their computer screen stressing out over every tick of the market all day.
To find out more about this strategy, visit this Iron Condor Training Website for tons of free training videos, examples, reports and easy step by step instructions on how to trade the Butterfly Spread to generate a consistent income.
Author: Ted Nino
Showing posts with label futures option. Show all posts
Showing posts with label futures option. Show all posts
Wednesday, November 2, 2011
Saturday, October 29, 2011
Double Calendar: What Goes Down Must Go Up
Even though Double Calendar Spreads can be utilized in various stock market circumstances, they function finest in low volatility situations. Increasing volatility levels help these trades, while sinking volatility winds up hurting them.
Mainly because calendar spreads churn out profit the fastest at neutral to rising volatility levels, some calendar spread traders will wait to make a trade right up until an underlyings volatility either reach the lowest level of their average range, or until they move into the lower third area of their normal volatility range.
By waiting for these lower ranges, the calendar spread trader is increasing his or her odds that the volatility levels will either remain wherever they're and not go much lower which could wind up hurting the trade, or will start to rise back up which could put their calendar trade into significant earnings pretty swiftly.
Typically volatility levels move down because the marketplace heads upward and volatility levels go up because the marketplace moves down. This is why calendar traders will usually put on calendar spreads when they have a bearish view on the stock market or on the underlying asset they are trading.
A popular method for option investors with a bearish outlook is to place a calendar spread slightly below where the market or stock is trading at, with the expectation that as the market or stock does head downward, not only with the underlying move directly into the sweet spot of their calendar position, but the volatility will also rise, super charging their calendar trade into a very good profit.
This method can also be used with double calendars, and in fact many option traders would argue that it would be preferred. Using a double calendar could increase the probability of taking profit from the trade as it could be placed with a skew that would not only create a wider sweet spot inside the profit tent for the underlying to get caught in, it could also supply an extended profit tent coverage over the area where the underlying is trading at when the trade is first initiated, providing a safety net if it turns out that the traders speculation on direction turns out to be incorrect.
To find out more about double calendar , visit Ted Nino's site on how to correctly enter, exit, manage and adjust a calendar spread trade for consistent income.
Author: Ted Nino
Mainly because calendar spreads churn out profit the fastest at neutral to rising volatility levels, some calendar spread traders will wait to make a trade right up until an underlyings volatility either reach the lowest level of their average range, or until they move into the lower third area of their normal volatility range.
By waiting for these lower ranges, the calendar spread trader is increasing his or her odds that the volatility levels will either remain wherever they're and not go much lower which could wind up hurting the trade, or will start to rise back up which could put their calendar trade into significant earnings pretty swiftly.
Typically volatility levels move down because the marketplace heads upward and volatility levels go up because the marketplace moves down. This is why calendar traders will usually put on calendar spreads when they have a bearish view on the stock market or on the underlying asset they are trading.
A popular method for option investors with a bearish outlook is to place a calendar spread slightly below where the market or stock is trading at, with the expectation that as the market or stock does head downward, not only with the underlying move directly into the sweet spot of their calendar position, but the volatility will also rise, super charging their calendar trade into a very good profit.
This method can also be used with double calendars, and in fact many option traders would argue that it would be preferred. Using a double calendar could increase the probability of taking profit from the trade as it could be placed with a skew that would not only create a wider sweet spot inside the profit tent for the underlying to get caught in, it could also supply an extended profit tent coverage over the area where the underlying is trading at when the trade is first initiated, providing a safety net if it turns out that the traders speculation on direction turns out to be incorrect.
To find out more about double calendar , visit Ted Nino's site on how to correctly enter, exit, manage and adjust a calendar spread trade for consistent income.
Author: Ted Nino
Tuesday, August 2, 2011
Tuesday S&P 500, 900 PUT Option Report
This morning we find the S&P 500 down again. I had previously made the comment that it would drop to between 1275 and 1250. It would appear the forecast is coming true. It is now the time to do a little more shopping. I'm thinking of SELLING another 900 PUT option. Perhaps in the same month, September. Margin/maintenance is under 1K and time is on my side. The vote on the new budget deal has passed the House and is now in the hands of the Senate. It's not much of a "Deal" and I believe the markets are reflecting their opinion also. But it is what it is. I think IF the Senate votes positively on the "Deal", the markets will rebound again and keep climbing to around 1400. That is unless another "Monkey Wrench" gets thrown into the gears. That being said, here's today's numbers. Margin Requirement $959.00.
The "Geeks" of it all:
The underlying Futures Contract is at:
The "Geeks" of it all:
Greeks / NBBO
| Symbol | Bid | Ask | IV | Delta | Gamma | Vega | Theta |
|---|---|---|---|---|---|---|---|
| SPU1900P | 0.40 | 0.55 | 42.18 | 0.01 | 0.00 | -0.10 | 0.04 |
The underlying Futures Contract is at:
| SPU11 FUTURES | 1269.40 Last | -10.30 Change | 1269.40 (1) Bid | 1269.60 (1) Ask | 3,795 Vol | 8:39:55 AM ET Time |
Monday, August 1, 2011
Monday Morning S&P 500 Option Report
This morning we find a possible agreement in our Nation's Capital concerning the "Debt" crisis. The markets are rebounding on the news but my 900 PUT option has not traded so the numbers on margin/maintenance are still high. It will take a while for the options in the underlying S&P Futures contract to settle back down. Currently my margin/maintenance requirement is at: Maintenance Requirement $1044.00.
The "GEEKS" of it all:
The underlying Futures contract is at:
The "GEEKS" of it all:
Greeks / NBBO
| Symbol | Bid | Ask | IV | Delta | Gamma | Vega | Theta |
|---|---|---|---|---|---|---|---|
| SPU1900P | 0.00 | 0.00 | 47.94 | 0.01 | 0.00 | -0.14 | 0.07 |
The underlying Futures contract is at:
| SPU11 FUTURES | 1303.30 Last | +14.90 Change | 1303.60 (3) Bid | 1304.00 (22) Ask | 2,038 Vol | 8:13:45 AM ET Time |
Thursday, July 28, 2011
Thursday S&P 500 Futures Option Report
With the S&P still falling on worries of our Nation's debt crisis deadline getting closer, I find the margin/maintenance requirement on my 900 PUT option has gone higher. It is now at: Maintenance Requirement $933.00.
The "GEEKS" of it all:
The underlying Futures contract is at:
The "GEEKS" of it all:
Greeks / NBBO
| Symbol | Bid | Ask | IV | Delta | Gamma | Vega | Theta |
|---|---|---|---|---|---|---|---|
| SPU1900P | 0.40 | 0.55 | 42.19 | 0.01 | 0.00 | -0.10 | 0.04 |
The underlying Futures contract is at:
| SPU11 FUTURES | 1297.90 Last | -1.00 Change | 1297.90 (18) Bid | 1298.20 (4) Ask | 2,493 Vol | 8:28:47 AM ET Time |
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