Options trading butterfly 5k
One reader posted an excellent comment that I decided to create a new post about. Here is what he asked:. Plz enlighten me — esp. I am not going to check his math because for the butterfly it does options matter. But in his analysis butterfly feels that the Calendar spread on MCD would be a better trade than the butterfly butterfly I put on. First, the max ROI is not really important because I am butterfly going to stick around for the max roi. It butterfly virtually impossible to nail the max roi on one of these especially as crazy as the greeks options closer to expiration. Second, since the breakeven range is about the same, you really can do either trade. So one is not better than the other. What makes the difference is how the options will behave — or how you think they will trading. Third, my butterfly was that prices will move up. When stock prices move up, option volatility goes down. When option volatility goes down, option premium goes down as well. So with the butterfly, the at the money option, which we sold trading lose value the fastest if volatility comes down. And thus the butterfly spread could be making money very quickly if there is a strong move higher. The butterfly makes money when volatility goes trading. The calendar makes money when volatility rises, especially in the back long month. So in this trading, we have a Calendar with the short option in Butterfly, and the long option in May. So May options will retain their premium because the implied volatility of the May options options remain stable until after earnings when they will drop. So a Calendar butterfly would work here as well. BUT, the calendar loses money if volatility drops fast because the value of the long option drops as well. In this case, this might not happen because of earnings. Normally, you want to put on a calendar when you think volatility is at a low point options will increase. Calendars make money quickly whenever volatility jumps. Of course I could be wrong and MCD could go the other way. In that case the Calendar would have been better. But both are doable in this situation. Instead of the 4 legged butterfly, anticipating a decrease in volatility, why not do a credit calendar spread? The way we do calendars — it is a debit, not a credit because we want the stock to stay still and not move much. The debit calendar spread options lose money if there is a large drop in volatility because the back month option trading lose money as well. So Calendars are best done when volatility will increase or is options low. Disclaimer and Risk Disclosure: Trading trading involves substantial risk and is not suitable for all investors. Past results do not guarantee future results. You can lose money trading options and the loss can be substantial. Losing trades can occur, have occurred in the past, and will occur in the future. Don't trade with money you can't afford to lose. You should read "Characteristics and Risks of Options Options" to further understand the risks of trading options. We are not licensed financial planners, financial advisors, stock brokers, investment brokers, or investment advisors. Before making any trades, check with a financial planner, investment advisor, tax advisor, or anyone else that controls your finances to make sure option trading is right for you. Trading information provided on this site should not be construed as individual investment advice. All information presented on this site is the opinion of the author only and is not a solicitation to buy, sell, or hold any investment or security of any kind. Government Required Disclaimer - Commodity Futures Trading Commission. Forex, Futures and Options trading has large potential rewards, but also large potential risk. You must be aware of the risks options be willing options accept them in order to invest in the futures and options markets. No representation is being made that any account will or trading likely to achieve profits or losses similar to those discussed on this website. The past performance of any trading system or methodology is not necessarily indicative of future results. Menu About Products Blog Login Start Here. Why Trade a Butterfly Over A Calendar? Genius on December 21, at Daniel S McCabe on June 26, trading 3: Leave a Comment Cancel Reply Comment Name required Email will not be published butterfly Website. How to be profitable no matter which way the butterfly moves: Up, Down, or Sideways. Please enter a valid email address. All Rights Reserved Website Design by Marketing Access Pass.
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