Iron Condor Adjustments: Monthly Income

A great strategy for option traders who believe that the underlying instrument they are working with will be range bound for the next 2 or 3 weeks to a month or so of time 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 completely wrong as there are many cases I can show you where trades have been saved and actually wound up making more money then they originally planned to make when the trade was first put on when the proper iron condor adjustment was put on in the correct manner - including the butterfly spread trade.

This theta positive option trading method produces profits when the stock or index that is getting traded remains within a contained area on the graph or ends up on expiration day at or near the sold strikes of this trade.

Here is an illustration of this tactic:

Buy 5 contracts of QQQQ 44 put. Sell 10 contracts of SPY 105 calls. Purchase 5 contracts of SPY 110 calls.

These trades can generate quick gains for the investor due to the fact that the short strikes of the position (the strikes which are sold) deliver so much premium into the traders account for the reason that they are being sold 'at the money'. The At The Money strikes are the strikes that have the greatest amount of time premium in them.

Whilst you will find a number of different variations of the butterfly strategy, the 2 that are most seen are the normal butterfly spread which is placed for a debit, as well as the iron butterfly, which is put on for a credit. Although these are two different versions of the butterfly spread, when you compare them next to each other on a a risk graph, they look identical. With both versions of this technique, it will be the short strikes, or the strikes that are sold at the money, that provide the trader with profits.

The butterfly method is a 'delta neutral' trade, meaning that investors who use this technique either don't have an opinion on marketplace direction or believe that the underlying being traded will remain in its general vicinity on the price chart for the duration with 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. What is different about this iron condor from the normal iron condor we are all used to, is the distance between where the short strikes are sold - either at the same strike price as is the case with the Iron Butterfly - or a good distance away from each other like what is done with the 'normal' iron condor trade.

To discover a great way to extract profits from the stock market on a regular basis - or to learn a fantastic way to hedge iron condors and make iron condor adjustments - be sure to check out the options trading butterfly spread strategy.

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