Option Strategies for Directionless Markets: Trading with Butterflies, Iron Butterflies, and Condors
Anthony J. Saliba, with Joseph C. Corona and Karen E. Johnson (Bloomberg Press: 2008)
When traders are first exposed to spreading strategies like butterflies and iron condors, one of the first questions they always ask us is, “Can you recommend a book that goes into these strategies in more detail? Where can I learn more?” We’ve had to reply that there aren’t really any books that discuss iron butterflies and…
Back on April 9, we published a bonus trade for our members that allowed them to participate in the rally that ensued, but with absolute downside protection. We brought in a $0.20 credit upon opening the position, and you could sell it to close today for about $0.32, which means this trade returned $0.52, for a 28% return on capital risked. Not too shabby.
The broken call condor was constructed like this:
+1 SPY May 141 call
-1 SPY May 142 call
-1 SPY May 144…
These are very short term overbought/oversold technical plays only.
Energy (XLE)
Thesis: The Energy ETF is well overbought on a short-term basis – practically maxed out at 99.98, and the implied volatility relative to its historical volatility over the past 21 sessions is also giving a sell signal.
Trade: Buy buy buy lots of naked puts! Just kidding. The XLE April 80/82 call vertical is selling for about $0.60. There are only 8 days left until April expiration if things don’t turn out…
Does this describe you?
You’d like to participate in any nice rally that comes our way over the next month;
You’d like to avoid any and all downside risk in case the rally never comes and indexes stay flat or plunge;
You’d like to get paid just for hanging around and waiting to see what happens.
Here’s a funky little way to do exactly those things. This trade has all the features that long-theta traders love, including long theta (positive time decay), defined risk,…
Friday, July 25, 2008
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