Utilizing the butterfly strategy when engaging in stock trading comes with the goal of stocks remaining neutral while in your portfolio, as opposed to them rising in profit. You achieve your maximum profit with the butterfly effect by keeping your strike price the same as the underlying price. This is the part that should remain neutral in order for profit to rise. You will see a maximum loss if the underlying price ends up being less than the strike price.
- To develop into a trader who is successful, one needs to learn several profit buckets and these are different strategies that are market specific.
- In stocks, one cannot bet that the stocks will remain neutral because the market is always volatile. That’s where the beauty of options comes to play.
- The butterfly strategy makes profits sure. It involves three options: Buying 1in the money option, selling 2 at the money options, and buying 1 out of the money option.
“If you want to actually learn how to trade options and beef up your trading arsenal…you’re going to need some tools.”