Strangle Spread
If you're new to our site, make sure to watch our FREE Online Option Income Trading Video by Going Here. Thanks for visiting!
<< Breakeven Spread Butterfly Strike >>
If you took the shorts away from a butterfly spread you’d be left with a strangle spread.
I think a lot of butterfly spread traders would love to be able to trade their butterflies without the wings - or the strangle. Having to buy the wings cut into the total profit potential. It also weighs down the trade, causing it to take longer to reach the profit target.
But many brokers won’t allow it - for margin reasons as without wings there is technically unlimited loss in the trade. Which is also the reason why I guess we need those wings - to protect again the possible - the unforeseen - no matter how remote it may be.
Having the wings limits the total loss that is possible in the trade. They can also assist in the adjusting and management of a trade. After trading these for awhile and becoming comfortable and accustomed to adjusting - a butterfly spread trader can use the wings as quite a versatile ‘tool’ in tweaking and tuning in a trade - not only to hedge against a big move that would cause losses - but also in prying and pushing out profits from the position.
Related Butterfly Spread Posts:
- Butterfly Spread The butterfly spread is a delta neutral theta positive...
- Butterfly Straddle photo credit: timlewisnm When trying to understand a more...
- Butterfly Payoff When you look at a risk graph of the...
- Butterfly Volatility photo credit: Nick.Fisher While changes in volatility will have...
- July ‘10 Butterfly Spread - Iron Condor #2 Closed This was our second RUT Butterfly we put on...
