Butterfly Option Strategy

In this article I’d like to tell you about the success I had within my first two months of trading. If you want to know about options trading strategies in general, look for my other articles on the subject.
I started trading options on the Australian Stock Exchange end of March 2008. Well, that is not entirely true. I actually started trading on paper in December the year before. I tried to make that as real for me as possible. I imagined calling my broker and requesting bid and ask spreads or calling in orders to buy or sell. Once the latter was completed I tried not to fool or lie to myself i.e. once a decision was made I didn’t rationalize it away.
So, by the time I actually put real dollars into the market I had about 4 months of active trading experience. I was doing well on paper but you never know until you have to manage your own hard earned money.
I did my first “live” trade while I was on a business trip in Finland. I remember waking up completely jet lagged in 4am (which was about 2pm in Australia). I fired up my computer and scanned thought the stocks on my watch list. I found one that fit my rules, I called the broker and entered the trade. It was a bull call spread on AWC. It cost me around 9k to get in. I got out two days later for about 2k of profit or 21%. This was the first time I realized that the way I trade options actually works and that I could make some serious cash with it. I remember sitting in my hotel room, alone and still unshaved, literally exclaiming “Holy cow! This stuff works!”.
In the next two months I went on a killing spree. I did about 30 trades like that, both bullish and bearish and only 2 were a loss. There was a bit of luck involved, I admit, because the market was benevolent. Still, I think that was a marvelous success for a beginner trader.
My system is actually very easy. It is purely technical which means that I don’t follow fundamental information (e.g. earnings reports, P/E ratios and what have you). In fact, 2 weeks ago I actually stopped even reading the news. The amounts of information are confusing and the opinions of “experts” often contradict each other.
All I do is to look at charts! I try to follow the trend of a stock; I trade on breakouts from support and resistance. And I also pay attention to a few price or momentum indicators such as RSI, stochastics and bollinger bands (if you have no idea what I’m talking about look for my other articles or visit my blog, I assure you this stuff only sounds complicated).
I look at my watch list every day. It consists of about 30-40 stocks. I am able to dismiss most of them within seconds. The 2-3 remaining candidates I can analyze in 15 mins. That is all the time it takes.