Start the conversation
Comment on This Story
Or to contact Money Morning Customer Service, click here.
This site uses Akismet to reduce spam. Learn how your comment data is processed.
Today, I want to dig into a unique trading strategy I recommend for my paid subscribers from time to time.
It's a move that allows you to lower your risk and cost – always something to shoot for – and still take those same massive profits we're always looking to grab.
It's called a "butterfly spread" trade, and it's perfect to use when the markets are experiencing high volatility like they are now.
Now, I can hear what you're thinking: "High volatility?! Tom, the S&P 500 is at record highs right now." But always remember, volatility is up and down movement; just because we're at record highs doesn't mean there's no volatility – we're just going through upside volatility.
Volatility of any kind can lead to an increase in option prices, which could make it tough to stick to one of my most important trading rules: I only enter trades that are $500 or less.
The butterfly spread works a lot like some other trades we've talked about before, but it has some unique benefits I want to tell you about…
About the Author
Tom Gentile is widely known as America's #1 Pattern Trader thanks to his nearly 30 years of experience spotting lucrative patterns in options trading. Now, he's diving into the biggest market in the world - one that almost no one has heard of before.
Great stuff Tom. I'm a newbie and trying to understand the basics. What are the potential costs / losses from the sell to open Part of the butterfly if the price moves against us (down). Regards from Barry Faulkner.
Very excited to learn more about option trading. You have the expertise and I am willing to learn
can i do butterflies in level one? if not i just need to keep saving them. oh well.