System for option traders who feel the underlying instrument they’re working

A great system for option traders who feel the underlying instrument they’re working with will probably be range bound for the next 2, 3, or 4 weeks of time or so is the Butterfly Spread.

It is also a great options trading strategy to use when making iron condor adjustments to help with saving an iron condor trade when one of these spread trades start to go bad. A lot of option traders would prefer not to try adjusting iron condor trades as they think that this can cause more problems than it is worth. This is definately not the case as these trades can absolutely be saved and even make more in profits when the correct iron condor adjustment is used – for example the butterfly spread trade.

This theta positive option strategy produces profits when the stock or index that is being traded remains within a contained range on the graph or ends up on expiration day at or


Here is a trade illustration of this strategy:


Buy 5 contracts of QQQQ 44 put. Sell 10 contracts of QQQQ 46 put. Buy 5 contracts of QQQQ 48 put.

These trades can generate fast gains for the investor as a result of the fact how the short strikes of the position (the strikes which are sold) deliver so much premium into the traders account because of the reason that they’re being sold ATM or ‘at the money’. Strikes that reside ‘at the money’ generally contain the greatest amount of time premium in them.

While there are numerous variations of the butterfly strategy, the two most common are the regular butterfly spread which are put on for a debit, and the iron butterfly, which is placed for a credit. While these are two different versions of the butterfly spread, if you were to look at the risk graphs of each they look identical and for the most part they act identical as well. With both versions of this strategy, it is the sold strikes that deliver profits to the trader, as those short options decay in value the fastest over time.

The butterfly option strategy is a ‘delta neutral’ strategy, meaning that investors who use this technique do not have an opinion on market direction or believe that the underlying being traded will remain in its general location on the chart for the duration of the trade.

When traded properly, the butterfly strategy can be an extremely profitable, low stress, and enjoyable trade that when combined with other trades – requires very little time having to manage.

It can also be effectively used to make robust and solid iron condor adjustments when condor spread trades get into trouble. Also, it is interesting to note that a version of the butterfly spread trade that is called the ‘Iron Butterfly’ is actually an iron condor trade itself. The only difference between this type of trade and the more traditional iron condor is that the short strikes of the iron butterfly spread trade are usually sold at the same strike price – where with the more traditional iron condor spread they are sold some distance apart.

If you are looking to learn a consistent way to generate income from the market – or if you wish to learn how to make effective iron condor adjustments – take some time to learn the butterfly option spread trade.

While can be a great way to generate income, of course like any investment there are potential pitfalls one should be aware of before jumping in. To learn more about how to adjust iron condors visit our site.

Link to the main publication