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Butterflies and Condors are trades intended to take advantage of a neutral outlook and/or high implied volatility. They involve buying two options, at a net debit, to establish a position which profits if the underlying stays within a given range. The maximum risk and reward are known from the outset of the trade. The risk is equal to the debit paid for the trade and is incurred if the underlying moves too far in either direction. Although these strategies are considered more advanced because of the more complex construction essentially they combine two vertical spreads, one being a credit spread and the other a debit spread butterflies and condors have lower risk than call and put selling.
Table of Contents
What are Butterflies and Condors? Example of a Winning Trade Example of a Losing Trade Summary 2 3 3 4
Options involve risk and are not suitable for all investors. For more information, please read the Characteristics and Risks of Standardized Options. Copies may be obtained from The Options Clearing Corporation, One North Wacker Drive, Suite 500, Chicago, IL 60606 or call 1-888-OPTIONS or visit www.888options.com.
This material is being provided to you for educational purposes only. This information neither is, nor should be construed, as an offer, or a solicitation of an offer, to buy or sell securities by OptionMonster Holdings. OptionMonster Holdings does not offer or provide any investment advice or opinion regarding the nature, potential, value, suitability or profitability of any particular investment or investment strategy, and you shall be fully responsible for any investment decisions you make, and such decisions will be based solely on your evaluation of your financial circumstances, investment objectives, risk tolerance, and liquidity needs. Copyright 2008 OptionMonster Holdings, Inc. All rights reserved.
Options involve risk and are not suitable for all investors. For more information, please read the Characteristics and Risks of Standardized Options. Copies may be obtained from The Options Clearing Corporation, One North Wacker Drive, Suite 500, Chicago, IL 60606 or call 1-888-OPTIONS or visit www.888options.com.
This material is being provided to you for educational purposes only. This information neither is, nor should be construed, as an offer, or a solicitation of an offer, to buy or sell securities by OptionMonster Holdings. OptionMonster Holdings does not offer or provide any investment advice or opinion regarding the nature, potential, value, suitability or profitability of any particular investment or investment strategy, and you shall be fully responsible for any investment decisions you make, and such decisions will be based solely on your evaluation of your financial circumstances, investment objectives, risk tolerance, and liquidity needs. Copyright 2008 OptionMonster Holdings, Inc. All rights reserved.
Options involve risk and are not suitable for all investors. For more information, please read the Characteristics and Risks of Standardized Options. Copies may be obtained from The Options Clearing Corporation, One North Wacker Drive, Suite 500, Chicago, IL 60606 or call 1-888-OPTIONS or visit www.888options.com.
This material is being provided to you for educational purposes only. This information neither is, nor should be construed, as an offer, or a solicitation of an offer, to buy or sell securities by OptionMonster Holdings. OptionMonster Holdings does not offer or provide any investment advice or opinion regarding the nature, potential, value, suitability or profitability of any particular investment or investment strategy, and you shall be fully responsible for any investment decisions you make, and such decisions will be based solely on your evaluation of your financial circumstances, investment objectives, risk tolerance, and liquidity needs. Copyright 2008 OptionMonster Holdings, Inc. All rights reserved.
Summary
Butterflies and Condors spreads provide known and fixed maximum gain and loss. They are usually used in cases of high implied volatility and expectations of range-bound underlyings. They can be implemented using puts or calls. Condors have a wider range of profit, but cost more. They take advantage of high implied volatility (seen as likely to fall) and time decay. Because they require three or four strikes, they are expensive in terms of commissions and/or contract fees.
Options involve risk and are not suitable for all investors. For more information, please read the Characteristics and Risks of Standardized Options. Copies may be obtained from The Options Clearing Corporation, One North Wacker Drive, Suite 500, Chicago, IL 60606 or call 1-888-OPTIONS or visit www.888options.com.
This material is being provided to you for educational purposes only. This information neither is, nor should be construed, as an offer, or a solicitation of an offer, to buy or sell securities by OptionMonster Holdings. OptionMonster Holdings does not offer or provide any investment advice or opinion regarding the nature, potential, value, suitability or profitability of any particular investment or investment strategy, and you shall be fully responsible for any investment decisions you make, and such decisions will be based solely on your evaluation of your financial circumstances, investment objectives, risk tolerance, and liquidity needs. Copyright 2008 OptionMonster Holdings, Inc. All rights reserved.