The Butterfly Spread
Not sure how a butterfly works or makes money?
This video is in response to a question from a member. He wanted to know how the trade made money and why he had to exit the trade to get his profit. The answer to the second part of the question is because the butterfly is a debit trade and so you pay for the trade. As the trade makes money, the debit or value of the spread increase and when you sell it, you get back more than what you paid. Hopefully. If you do nothing, you risk getting assigned on the short options.
How the trade works as well as short explanations of the iron butterfly and split strike butterfly as shown as well. The butterfly in the video was an OptionGenius trade that resulted in a 20% profit. As you can see, the butterfly can and does give off large gains. But before you start trading them, you should also know how to adjust the trade if it goes against you. A little bit of that is discussed towards the end of the video.
If you have any questions, please let us know on the comments section below and be sure check out our previous blog posts for best options trading service and awesome tips on how to trade stock options.
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