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Butterfly Spread – Launching These Beasts For Monthly Profits

By Ted Nino

The option butterfly trade is really a treasured approach with option income traders. Not just does this trade – which is comprised of putsandcallsprovide the trader with a substantial quantity of premium when the trade is first put on, which might be parlayed into a significant monthly cash flow, it also supplies an extremely sturdy position composition which can tolerate and endure a variety of trading conditions, including really volatile situations like the ones we are experiencing now. In a wild stock market where by many other option tactics do not have a chance, the butterfly spread could be put on and if correctly supervised, come out doing just fine.

Whenever one looks at a risk graph of the buttefly spread, it is apparent that the butterfly spread payoff is massive – in particular when compared to other option spread approaches for example the iron condor, the credit spread, the diagonal, double diagonal, the calendar, double calendar, etcetera.

Depending on where the wings are positioned at with these trades, or in other words how close or far the long options are bought in relation to the strikes sold, it can be doable to generate a butterfly trade where the reward in the trade is many times more than the risk being taken on.

Nevertheless, in the occurances where the reward is numerous times greater than the risk being assumed, it is due to the fact that the wings that are being purchased are incredibly close to the strikes being sold, creating an incredibly tall yet really narrow ‘profit tent’ which the underlying has to remain inside of to realize that massive payoff – which the odds will probably be incredibly low.

Even so, if the underlying remains inside of the overall location of this tall, narrow income tent – and the trader does not decide to try and remain with the trade all the way until expiration – an excellent profit can still be extracted from these lower probability straddles trade, as the 0 day earnings line rises up quite rapidly and a good quality return can be snapped up in a short period of time.

Ted Nino is an option selling evangelist – particularly fanatical about trading straddles , the Double Calendar, the Credit Spread, and the Butterfly Spread. Visit his puts and calls Blog to learn more about these option strategies.

categories: butterfly spread,option trading,stock trading,stock,trading,forex trading,forex,currency trading,stock market,investing,investment,finance,personal finance,wealth building

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Article Citation
MLA Style Citation:
Nino, Ted "Butterfly Spread – Launching These Beasts For Monthly Profits." Butterfly Spread – Launching These Beasts For Monthly Profits. 4 Jul. 2010. 4 Aug 2014 <>.

APA Style Citation:
Nino, T (2010, July 4). Butterfly Spread – Launching These Beasts For Monthly Profits. Retrieved August 4, 2014, from

Chicago Style Citation:
Nino, Ted "Butterfly Spread – Launching These Beasts For Monthly Profits"

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