Stock options butterfly


More video on topic «Stock options butterfly»

Short Calendar Spread - Volatile options strategies that profit primarily through the difference in time decay of long term and short term options, achieved through writing longer term options and buying short term options. Read the full tutorial on Short Calendar Spreads.

Butterfly Pictures , Photos, Images, butterflies

Greeks - A set of mathematical criteria involved in the calculation of stock option prices. Please read more about Option Greeks.

Optionistics - Stock Options Trading Tools

Protective Put - An option trading hedging strategy that hedges against a drop in stock price using put options. Read More About Protective Put Here!

Leg - (Verb) A risk oriented method of establishing a two-sided position. Rather than entering into a simultaneous transaction to establish the position (a spread, for example), the trader first executes one side of the position, hoping to execute the other side at a later time and a better price. The risk materializes from the fact that a better price may never be available, and a worse price must eventually be accepted.
(Noun) In an option strategy involving many kinds of options, each option type is known as a leg. Read the full tutorial on Options Leg !

If the stock is at or near strike B, you want volatility to decrease. Your main concern is the three options you sold. A decrease in implied volatility will cause those near-the-money options to decrease in value, thereby increasing the overall value of the butterfly. In addition, you want the stock price to remain stable around strike B, and a decrease in implied volatility suggests that may be the case.

Therefore, in more detail, long butterfly spreads are entered when the investor thinks that the underlying stock will not rise or fall much by expiration. Using calls, the long butterfly can be constructed by buying one lower striking in-the-money call, writing two at-the-money calls and buying another higher striking out-of-the-money call. A resulting net debit is taken to enter the trade.

Uncovered Option - A written option is considered to be uncovered if the investor does not have a corresponding position in the underlying security.

Hedge - Transactions that will protect against loss through a compensatory price movement. Read All About Hedging Here!

Closing Order - The buying back or selling off of an option for which an option trader has the opposite position. An option trader who writes a call option will execute a closing order by "buying to close" that call option. An option trader who bought a call option will execute a closing order by "selling to close" that call option. Types Of Options Orders Explained.

For this strategy, time decay is your friend. Ideally, you want all of the options except the put with strike D to expire worthless.


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