Butterfly Option Strategy » Bull Put Spread http://butterflyoption.net A low-risk, limited-profit strategy Sat, 31 Jul 2010 17:29:54 +0000 http://wordpress.org/?v=2.8.4 en hourly 1 Generate Consistent Stock Market Profit Through Credit Spread Writing http://butterflyoption.net/generate-consistent-stock-market-profit-through-credit-spread-writing http://butterflyoption.net/generate-consistent-stock-market-profit-through-credit-spread-writing#comments Wed, 09 Dec 2009 15:25:25 +0000 admin http://butterflyoption.net/generate-consistent-stock-market-profit-through-credit-spread-writing Many traders and investors dream about making consistent profit on the stock market. Typically, investors would turn to fundamental analysis for medium to long term capital gains while traders would try to time the market using technical analysis to spot reversals or advantageous entry point and exit with the first sign of trouble. Unfortunately for everyone, the stock market is a zero-sum game. What this means is that for you to profit someone else would have to lose. The market exchanges acts like a distribution center of wealth. Essentially, without knowing, many novice investors and traders are actually trading against the professional and institutional traders. Who do you think will win most of the time? The answer is obvious. Credit Spread is one of the lesser known trading strategies available to the options trader. This strategy is call “credit spread” because you actually collect your target profits upfront or a credit when you enter into a credit spread position. Credit spreads are directional plays – bull or bear. The bull spread is called Bull Put Spread while the bear spread is known as the Bear Call Spread.

The Credit Spread Option Trading Strategy can be constructed to be a low risk investment vehicle. Using this strategy, we are able to use time decay in Options prices to our full benefit. Time decay works towards our advantage the closer it is to expiration. With this in mind, time can very well be our ally in our quest for profit. We just need to know how to use time to help us.

Fact – about 80% of all options expire worthless, it makes sense that serious and long term investor should only be writing credit spreads for a living.

How do we profit from Credit Spread?

Assuming that we are writing a Bull Put Spread:

If the stock moves upwards, we make money. If the stock moves sideways, we make money. If the stock moves lower, but is above the strike price that we sold our puts, we still make money.

I don’t know about you, but any trade that lets you earn a full profit when your stock moves higher, when it moves sideways, or even when it moves lower enhance your winning probability. Credit spread writing is a powerful trading strategy because, if written correctly, it provides room for error and you would still profit even though you are wrong.

The closer it gets to expiration (most of the time 3 rd Saturday of the month), the better it is for us. We make money using the passage of time. Many seasoned credit spread traders like to view the 3rd Saturday of the month as their pay day.

The biggest problem in Stock Options Trading is the race against time. More than 80% of options expire out-of-money or, in simpler terms, expire with no value. If you bought options, this means you would have lost all your money in the trade. So with this fact in mind, use an Options Trading Strategy that would put you on the other side of the table. And that is to use a time profiting trading strategy called Credit Spread.

]]> http://butterflyoption.net/generate-consistent-stock-market-profit-through-credit-spread-writing/feed 0 Consistent Monthly Cash Flow Using The Iron Condor Option Trading Strategy http://butterflyoption.net/consistent-monthly-cash-flow-using-the-iron-condor-option-trading-strategy http://butterflyoption.net/consistent-monthly-cash-flow-using-the-iron-condor-option-trading-strategy#comments Tue, 01 Dec 2009 03:54:15 +0000 admin http://butterflyoption.net/consistent-monthly-cash-flow-using-the-iron-condor-option-trading-strategy Iron Condor Spread is the combination of a Bullish Vertical Credit Spread and a Bearish Vertical Credit Spread on the same underlying asset. Depending on how the spreads are constructed, option traders will potentially be able to obtain twice the collect premium over a single spread position. Since there are bullish and bearish spreads involved in the Iron Condor Option Trading Strategy, there is an upper break even and a lower break even point. Profit is realized when the underlying asset remains above the lower break even point or below the upper break even point. In other words, as long as the price of the asset is above your bullish short strike and below the bearish short strike, the option trader will profit from both spreads through time decay. This strategy can be used regularly on a monthly basis to consistently generate a healthy cash flow in your trading business.
Time decay erodes the value of option prices. There are not many option traders who understand the benefit with trading spreads because it simply looks too complicated. Well, it is not.
Iron Condor Spreads is a market neutral strategy that has positive time decay and negative gamma with limited risk. Traders with any level of option trading experience can use this trading approach. Depending on your brokerage expertise and software, these spreads should be available electronically with single click functionality. Some brokers may even provide better leverage when you trade Iron Condor with them.
The IronCondorSpread Newsletter was designed to identify low risk option trading opportunity when an index remains in a narrow trading range during the current expiration cycle. Holding period is always not longer than 60 days.
In trading, the only objective is to make money. As a trader, you should not into big gains or excitement. Constructed correctly, the iron condor spread can be a consistent income generator. Before getting into new positions, you should look for positions that have an extremely high percentage of profitability. If you have the odds of winning in your favor. you will likely be profitable in the long run.
To do so, look specifically for options that have a relatively higher level of volatility. This means to look for positions that are over priced. Establish a trade positions that you believe that the underlying asset will not move to anywhere new your short strike.
To achieve consistent profit, our Iron Condor positions will always have a wide profit range on the underlying asset. So, in the event that the underlying moves up, down or even sideways, you will always profit with time decay. Having a large profit range is important because it will almost certainly guarantee that we will profit consistently and also it does not require us to spend a lot of time to monitor our open positions. We like the idea of trading with little stress and with little work. Our usual profit target for each Iron Condor spread is 13% to 18%. Profit is usually realized within 60 days.
Iron Condor trading is an effective trading strategy because it is a limited risk approach. You will never lose more that you have allocated for each trade. Although it comes with a high probability of winning, losses can be kept low when the trade moves against you. As rare as losing month may be for us, keeping losses low is the key to any successful trading strategy. While making money is important, capital preservation is equally or more important.
The IronCondorSpread Newsletter, http://www.ironcondorspread.com is the premier website in Credit Spread and Iron Condor Spread Option Trading strategy.

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