Butterfly Spread – Will You Marry Me?

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The butterfly option strategy is one of the most robust and versatile option selling techniques available to option sellers.

In lazy, quiet market conditions there is very little – if anything – to do to manage these trades other than sit there in your chair and watch your trading account grow as your 0 day risk graph line rises steadily up into the air. In fact, it’s so hypnotizing that it’s actually sort of difficult to stick to your rules and take the darn thing off when you pass through your profit target for the month.

But, I guess the same thing could be said for our other bread and butter monthly income strategies as well – like the iron condor, the diagonal, the calendar and the double calendar. At least during those beautifully lazy, calm, quiet trading months.

But what is different about the butterfly spread – what makes this trade stand out from those others – is how it handles during the difficult months.

Ever since the crash in late 2008, theta positive, monthly income option trading has been a challenging endeavor to say the least. Sure, all those afore mentioned trading strategies can and have worked – however through many of the months there’s been a lot more work, adjustments, annoyance, and stress involved then in past more peaceful trading times.

Out of all of those strategies (and I’ve had the ‘pleasure’ to trade them all through this period) the butterfly spread – and in particular the iron butterfly and the broken wing – is the one option strategy that has been the most robust – the most consistent – the most reliable – and the one that has given me the least amount of problems – and the most amount of profits.

And yes, even though I do love iron condors – and I do love calendars – and double calendars – and double diagonals… well, yeah, they’re okay too.

But the butterfly spread?

Oh lordy.

I get all emotional and choked up just thinking about it.

Okay, here – let me try and pull myself together…

Okay – what it all boils down to is this…

If a no good, slimy faced, greasy rotten crook broke into my trading lab – pointed a pistol at me – and made me choose just 1 option trading strategy I could play for the rest of remaining life – without a doubt I would pick the butterfly spread.

I love you Butterfly Spread.

Oh man…where’s a tissue…

Ted Nino is an option selling crazy person – particularly nuts about trading the Butterfly Spread, the Iron Condor, Credit Spreads, and Calendar Spreads. Be sure to visit his Butterfly Spread Blog to learn his simple step-by-step method to trade this strategy for consistent monthly returns.

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Iron Condor – How To Get Your Life Back

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My plan for trading the iron condor when I first got started trading this strategy was to put them and keep them on all the way until expiration.

Then – if everything went well and the trade stayed beneath my profit tent – I’d just them expire worthless and keep all that sold premium in my account.

Back then I believed this was the best way to play the trade, because not only would I not have to pay my broker to take the trades off – I would also be able to keep the entire amount.

But that was a long time ago – and since then – things have changed.

Now, after experiencing too many nights where I couldn’t sleep, a number of very ‘close calls’, more than my fair share of stinging ulcers and even a near hernia, I’ve made a change to the way I trade iron condors.

Here’s what I do now: Right after I put on my iron condor, I tell my options broker (through the use of automatic contingent orders) to buy back both the put credit spread and the call credit as soon as I make the bulk of available profit in each spread.

Here’s an example: Let’s say I sold an iron condor on the index XYZ for a total of one dollar – or around fifty cents each side.

When the put credit spread is worth only .10 – buy it back. And for the call credit spread the same thing goes.

Now a lot of iron condor traders might say this would be a dumb thing to do.

But personally – I completely disagree.

Okay, maybe it’s true that doing this will cause me to make less profit than if I were to just hold the trade through expiration and let the options expire worthless.

But as you will see – that’s not necessarily correct.

Let’s take a second look at the amount of money we are talking about here. Ten cents per side – or twenty cents total. Okay – sure – it’s nothing to sneeze at – but when you step back, get a broader look, and start to take a few other things into consideration – it can actually start to look quite miniscule.

What’s more important (at least for me) – is that by closing my iron condor trade early, I have LOCKED IN FOREVER the majority of the gains on that side of the trade. And no matter what happens going forward – those gains that I’ve just banked CAN’T be taken away from me.

AND – I’ve reduced my risk.

I have also given myself the opportunity to generate ADDED gains from my overall position – without adding any extra risk.

Let me explain:

I’ve found that many times during a trade, the premiums in options can drain quite rapidly. In fact, its possible for a spread to drain the majority of its premium in a matter of days.

Say I put an Iron Condor on XYZ – 40 days from expiration – for a credit of $1.00 – or.50 each side.

Immediately after placing the trade, XYZ heads downward over a number of days.

On the fifth day (just 4 days after I put the trade on), I look at my position and see that I can now buy back the vertical spread on the call side of my iron condor for just .10.

Now, if I don’t do anything and just let the trade continue to play – what I am actually doing is risking that upper side spread margin – for the next thirty six days until expiration – for just ten little dollars of additional potential profit. And that doesn’t really seem that worth it to me.

But – if I instead just spend the ten measly bucks to pull off that upper credit spread – I will LOCK IN the majority of the profit that was available in that spread – and earn a great return on investment in just four days.

Another thing to consider, is if the stock or index we are using abruptly changes direction and heads back up (which of course DOES happen all the time) we really have nothing to be alarmed about since we’ve removed those upper options and eliminated all upside risk.

In fact, if XYZ bounces back up high enough, I could RESELL the same CALL spread that I originally sold – for the same original credit – or maybe even more – increasing my total ROI for the same amount of RISK that I began with.

But let’s just say we didn’t ‘re sell’ any options. Let’s just assume that we closed the trade entirely when our contingent orders were hit. In this case what we’ve done is eliminated risk (good thing) – freed up capital (good thing) – enlarged our return on investment over the number of days we have been in the trade (good thing) – and gotten completely out of the market a while lot sooner than if we had to sit around and wait until expiration day rolls around (and in my opinion this is a good thing too!).

Trading this way lets me take a ‘vacation’ away from the markets until it’s time to put on another trade. It allows me to peel myself away from my trading monitor and get out and enjoy all the other things in my life I’m interested in – without always thinking about how my iron condor is performing – or fretting about what I’ll do if there is a sudden stock market crash.

And being able to temporarily take some time to ‘get away’ from the game – from the iron condor and ‘option trading’ and ‘vega’ and ‘adjustments’ and ‘theta decay’ – to be able to go out and do other things during market hours without always feeling the need to check quotes on my phone to see what the market is doing – and just having the opportunity to fall into bed at night and sleep like a baby without a care or worry about whether or not there will be a huge gap tomorrow morning at the open…

That’s priceless.

Or at the very least they are WITHOUT A DOUBT worth every penny of the ridiculously small .20 cents or so of potential profit left on the table in exchange for getting out of my monthly iron condor trade early – at what is STILL an incredible monthly return.

Ted Nino is an option selling fanatic – especially passionate about trading the Iron Condor , the Credit Spread, Double Calendars, Gamma Scalping, and the Butterfly Spread. Go to his Iron Condor Website to find out more about his ‘Simple Paint By The Numbers Blueprint’ for playing the Iron Condor for reliable monthly returns.

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Best Advanced Tips For Forex Trading Success!

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Trading the Forex market can be tremendously exciting and rewarding but that doesn’t mean that starting out can’t be nerve wracking and at times frustrating. That’s why eToro offers you these 10 top tips to help you trade:

1. Get Your Feet Wet Gradually. Most new FX traders start by opening many trades and then find it hard to monitor them all. By focusing on just a very few trades in the beginning you’ll give yourself the opportunity to keep track of your trades, and to figure out how to adjust your trading approach according to market movements.

2. Stop Forgetting Your Stop-Loss! The key cause of unsuccessful Forex trading is excessive losses and the single biggest cause of losses is incorrect portfolio management. Remember that a Stop Loss is not there for decoration, it is there to prevent your losses from mounting up. Use it wisely and you will soon see your loss rate reducing!

3. Build A Trading Plan/System. Every trader develops their own individual trading system, depending on the amount of time they dedicate to trading. Traders with more time may adopt a day trading strategy, while others might prefer longer term positions. The important thing is that, whichever trading style you adopt, you stick to your trading plan. Many new traders who experience losses find themselves tempted to switch approaches, however one or two losing trades don’t necessarily mean that your trading system isn’t going to be a profitable one.

4. Don’t Cut Your Profits Short. The number one mistake new Forex traders tend to make is closing their winning trades too early. By sticking to your trading plan you can learn to avoid making hasty exits that reduce your potential profits.

5. Don’t turn Profitable FX trades Into Losing Ones. Once the market is going your way and your positions show a profit, keep a close watch on them. Move your stop loss forward to your entry point to secure your investment. Then keep moving your stop loss forwards in the direction of the trend to secure your profits and prevent your trade from slipping back into a loss.

6. Beware Of Scaling In. Scaling in is a Forex trading strategy where an investor increases his position size when the position is negative, hoping that it will retrace back and close all the positions in profit. Using a Scaling in strategy isn’t necessarily a bad thing but it can quickly wipe out your account if you don’t know how to use the strategy correctly. As such it can be a risky approach for a beginner trader.

7. Plan Ahead. Never enter a trade because the price is suddenly rising or decreasing. Always plan your trades in advance. Know your desired entry point, Take Profit and Stop Loss rates before you trade and wait for the right opportunity to arise.

8. Preserve Your Capital. Profits are there for the making, but the real key to lasting Forex Trading achievement is not just to make profits, but to keep them. Letting profitable trades run, cutting your losses quickly and keeping cool under pressure and in line with your trading plan is you key to profitability not for a single trade but across all the trades you make.

9. Trends Carry Momentum. New Forex Traders are often unaware that as a new trend starts to build its momentum tends to increase. Additional traders will tend to jump on board an emerging trend, strengthening it as it continues to develop. Try to trade with the market’s momentum on your side, as it will often push your trades in the right direction, hitting your profit targets sooner than you might expect.

10. Don’t Waste Your Time On A Losing Forex Trade. If you find yourself in a losing position, remember that it is better to save your energy, cut your losses and move on to the next trade. The Forex market is full of profitable opportunities, just waiting to be exploited, so don’t waste your time on an unprofitable trade!

These 10 trading tips can help you achieve positive results in your Forex trading activity. Reading about them is not enough, however. Successful trading is all about real market experience so to start implementing these lessons now by real trading!

Mr raminozisky rami lectures on What is Forex? , Forex Tools and Trading Du Forex

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Vertical Spread – Getting Wall Street To Cry ‘Uncle’

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A number of different techniques and strategies are available to option investors to help assist them in achieving consistent and reliable monthly income from the option market.

Some of these different strategies include the calendar spread, the butterfly spread, the diagonal spread, the iron condor, and the Vertical Spread, also known as the Credit Spread.

The vertical spread is actually a very important and core strategy that is found in many if not all option strategies – including the ones just mentioned. As an example of this, look at the iron condor. This strategy is simply just two vertical spreads – one placed above where the stock being used is trading at – and one below.

The butterfly position is also comprised of vertical spreads. The lower half portion of the butterfly spread is simply a vertical spread – as is the top half. Same goes with the iron butterfly. This trade also is built from verticals – a call vertical and a put vertical.

The vertical spread trade can be built from either call options or also put options.

Following is an illustration of a bull put vertical spread…

Sell 1 ABC Stock 75 Put Option Buy 1 ABC Stock 70 Put Option

The vertical spread in the example above is a bearish position. Our hypothetical trader who placed this trade believed that RIMM would be moving lower – or staying in it’s general vicinity on the chart.

This position is called a bull put spread due to the fact that even though the position is created using put options, it is being placed in such a way that generates a profit if and when the stock being used moves bullishly.

As long as the outlook on this trade is correct and RIMM stays where it is at or heads downwards, this trade will ‘win’ and the initial credit received when the trade was first placed will become the profit.

Learn more about Vertical Spread. Stop by Ted Nino’s site where you can learn everything you need to know about how to trade the Credit Spread for monthly income.

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Iron Condor Adjustments – Scary, Scary Stuff

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The Iron Condor has two faces (and I thank the good lord above that neither one of these faces belongs to Barbara Streisand – but then again, perhaps it’s even worse)

Usually when the iron condor and the new option trader meet, the iron condor comes across as this amazing beautiful trade – a holy grail type of method that almost guarantees success with every single trade. A spread that only takes a few minutes every month to put on and manage – and one that spits out consistent cash like a broken Las Vegas slot machine.

Of course, new option traders go gaga over this strategy – and who could blame them. It seems to be a trade that’s almost too good to be real.

And sadly, sooner or later (mostly sooner) they discover that it IS too good to be true.

Sort of.

You see – in actuality, the iron condor really is a pretty amazing trade. One that can take a very small amount of time to manage – and yes, one that can spit out some pretty incredible returns.

The problem, is that what the rookie option trader WASN’T told upon first meeting the iron condor – is that the iron condor spread has a nasty side that shows it’s face every so often. And it’s nasty enough to completely destroy everything good that the ‘good side’ of the iron condor can provide.

It all boils down to the risk to reward ratio of these trades. They have a high probability of winning many small trades – but just ONE loss can completely DESTROY a trading account. And if the one trading these birds don’t realize and fully understand this – and more importantly how to properly manage these trades and how to make effective iron condor adjustments – before long they will get creamed and blasted out of the market possibly with a huge, unrecoverable loss.

BUT – it doesn’t have to be this way. The secret to success in trading this strategy is to simply be aware of the iron condor’s potential danger – and then know how to correctly manage and adjust them so when those rare ugly months come along where the condor shows it’s nasty side – we know exactly what to do and we have a plan in place to adjust our way out of danger. This is the MOST important thing to learn about trading this strategy: how to make proper iron condor adjustments. For long term reliable profits and consistent success – this is the KEY.

Looking to find the best deal on iron condor adjustments, then visit www.ironcondoradjustments.com to find the best training on how to trade the iron condor for monthly income.

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