A terrific strategy for weekly option income market players who believe the stock or index they're working with will most likely stay within a range for the short term is the butterfly option strategy.
This strategy is a positive theta trade as it produces income from the passage of time as the weekly options that are sold in the position decay over time. As long as the underlying stock doesn't move too far in either direction or just as long as the price of the underlying index ends up at or near the sold strikes of the position on expiration day, this trade will profit.
Here is a trading sample of this weekly options method:
Buy 5 contracts of QQQQ 44 put. Sell 10 contracts of QQQQ 46 put. Purchase ten contracts of SPY 110 calls.
These positions can yield speedy profits for the market player due to the fact that the short strikes of the trade (the strikes which are sold) render so much premium into the traders account for the reason that they are being sold 'at the money' - which are the strikes that have the greatest amount of time premium in them. The 'at the money' strikes always contain the greatest quantity of time premium, which is what option income traders are hoping to profit from when trading these type of income positions.
Though there are many variations of the butterfly strategy, the two most normal are the standard butterfly spread which are started for a debit, and the iron butterfly, which is put on for a credit. While these are 2 different mutations of the butterfly spread, if you were to view the risk graphs of each they would appear one and the same and for the most part they act perform alike as well. With both mutations of this trading strategy, it is the sold strikes that create positive returns to the trader as those short options disintegrate in value over time.
The weekly options butterfly methodology is a 'delta neutral' position, meaning that derivative traders who apply this technique either don't have an sentiment on marketplace direction or judge that the underlying being used will continue in its ordinary space on the price chart for the period of the trade.
When played fittingly, weekly options can be an enormously profit making, low stress, and rather pleasurable trade that needs very little time and energy having to manage.
This strategy is a positive theta trade as it produces income from the passage of time as the weekly options that are sold in the position decay over time. As long as the underlying stock doesn't move too far in either direction or just as long as the price of the underlying index ends up at or near the sold strikes of the position on expiration day, this trade will profit.
Here is a trading sample of this weekly options method:
Buy 5 contracts of QQQQ 44 put. Sell 10 contracts of QQQQ 46 put. Purchase ten contracts of SPY 110 calls.
These positions can yield speedy profits for the market player due to the fact that the short strikes of the trade (the strikes which are sold) render so much premium into the traders account for the reason that they are being sold 'at the money' - which are the strikes that have the greatest amount of time premium in them. The 'at the money' strikes always contain the greatest quantity of time premium, which is what option income traders are hoping to profit from when trading these type of income positions.
Though there are many variations of the butterfly strategy, the two most normal are the standard butterfly spread which are started for a debit, and the iron butterfly, which is put on for a credit. While these are 2 different mutations of the butterfly spread, if you were to view the risk graphs of each they would appear one and the same and for the most part they act perform alike as well. With both mutations of this trading strategy, it is the sold strikes that create positive returns to the trader as those short options disintegrate in value over time.
The weekly options butterfly methodology is a 'delta neutral' position, meaning that derivative traders who apply this technique either don't have an sentiment on marketplace direction or judge that the underlying being used will continue in its ordinary space on the price chart for the period of the trade.
When played fittingly, weekly options can be an enormously profit making, low stress, and rather pleasurable trade that needs very little time and energy having to manage.
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