Trading Range Limited Risk
Long At-The-Money Butterfly/Condor
- A condor is like a "stretched out" butterfly with two different middle strikes rather than just one
- Can be a relatively inexpensive option strategy that has limited risk and limited profit potential
- The closer a butterfly is to expiration, the more it will react to changes in the stock price
- A strategy used by professional traders for years because of its protective characteristics
- For a long butterfly, you want the stock to stay near the middle strike
- Time decay (positive theta) is your friend
Long At-The-Money Time Spread
- Long back month call (put) and short front month call (put) with the same strike price
- Maximum loss is limited to the price of the time spread, but can be greater in certain index options
- This spread works best if the stock price stays right at the strike price
- Implied volatility can change at different rates in different expirations
- The position becomes more sensitive to changes in the stock price as expiration nears
