Secondly, the butterfly is an area totally new to me. I’m exploring the possible trades and counters that i can do a butterfly trade on.btw, do you have some counters that meet your selection criteria? do you have a blog yourself?

What i do most in terms of options is to conduct Iron condors on RUT. It has been profitable, but one has to really understand the system and the concept of proability and high risk.

Do keep me posted on your butterfly experience Ben.

Butterfly’s are indeed a very good range bound trade. The key reasons for trading long butterflies is that the premiums are typically cheap and the maximum risk is the premium paid.

I tend to like butterfly trades during OE. The biggest problem in these trades is getting fills. It is hard to to get all fills on both opening trades and closing trades so this tends to be a position that is quite often legged into.

There are many technical aspects to butterfly trades that people should understand. They approach the spread with time. Depeding on where a person plays the spreads (centered ATM, near ATM, OTM, or ITM), they can take advantage of increasing or decreasing IV.

If a person is looking for a larger range trade, the can play a long call or a long put condor (Not to be mistaken with a Iron Condor which uses both puts and calls).

The case for short butterfly spreads is usually when other spread strategies (like a put debit and a call debit) are too expensive. Like back spreads for credits, the short butterfly spreads can produce large losses if the stock ends OE on the long strikes.

Happy trading and have a good 4th.

Best regards,

Ben