Timing your butterfly trades

摘要

Butterfly spreads offer unique profit opportunities with limited risk, but you have to know what to look for in the underlying stock to take advantage of these opportunities. As has been the case in the equities markets throughout the past few years, commissions for trading options have been coming down dramatically. This change, combined with improved technology at both brokerage firms and options exchanges, has fueled the growth of complex strategies among retail options traders. One popular example is the long three-legged butterfly spread. As recently as three or four years ago, there was little demand for butterflies from retail options traders. Because a butterfly typically generates only modest profits, only large positions could profit enough to offset the commissions; thus this strategy was only suitable for institutional traders. This is no longer true.