There are two types of options contracts: call options and put options.

Call Options

Basically, call options give the owner the authority to buy the underlying asset within the contract. Again, it is not an obligation.

For example, John and Tom agree on a call options contract wherein John will purchase from Tom, 100 shares (equivalent to one option) of Company A at $20 (strike price) what’s going to expire around the third Friday of April. The current cost of the share is $20.

Put Options

In put options, the customer has the right to sell a good thing to the writer (the seller). Just like the call asset, it is bounded by a contract which states that the underlying asset is going to be sold in a particular price on a particular date. However the similarity ends there. In put options, the author has to purchase the underlying asset at the strike price when the buyer exercises this method.

Buying put options allows investors to earn money when cost of shares drops at the end of the contract.

Profit potentials are unlimited for that buyer of put options, particularly if the market begins to sell off. However, risks are limited when the market goes against them.

Important note:

In reality, trading of options or transactions does not occur between two persons. Buying or selling sometimes happens without knowing the identity of the other party.

Options are only bought from 100 share lots. Therefore if the stock price is $20, you will have to pay $2,000 for every option contract plus the Option Premium.

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Credit spreads.

This term applies whenever our prime return option has been sold while a low return option is bought. In turn, the investor then ends up some credit via your account. Generally, the online brokers request approximately $100,000 in their own individual accounts prior to the investor is permitted to procure numerous credit spreads.

Derivatives.

They’re held to become the security where the price relies on a number of from the available assets. Its value is then very determined by the assets’ variables.

Investment.

They are the holder’s contracts in selling or buying the decided stocks carrying out a set price prior to the contract finally reaches its expiration.

Debit spreads.

In this case, the investor has to put up some cash in order to conduct a particular transaction. He must secure the required funds which will cover the foreseen debit. However, there aren’t any further margin requirements and they’re likewise be extremely popular among the investors.

Options strategies.

Fundamental trades coupled with many techniques which the investor uses which are geared towards enhancing his capital with little money down.

Iron condor spread.

This one has been said to become a complex process in trading options. It’s naturally a credit option and therefore poses both a bad risk and also a frequent loss. Car loan brokers are again accustomed to require that the investor pops up having a definite quantity of methods within their account before the transaction is initialized.

Again, these fundamental essential jargons that you have to familiarize yourself with while you reflect on constructing your personal trading options setup venture.

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There really is not much you have to do in order to realize a profit when trading this strategy in calmer more docile months. They are what I like to refer to as a ‘lazy’ trade – one that quite quickly kicks off a profit – as long as the underlying – and the stock market in general – behaves itself and stays contained nicely in a range.

But, I guess the same thing could be said for our other bread and butter monthly income strategies as well – like the weekly options iron condor, the diagonal, the calendar and the double calendar. At least during those beautifully lazy, calm, quiet trading months.

But what is different about the butterfly spread – what makes this trade stand out from those others – is how it handles during the difficult months.

Most of the normal ‘bread and butter’ option income trades – like the iron condor, the calendar, and the diagonal – have been somewhat difficult to trade ever since the big crash in 2008. Can they still be traded – and can they still produce profits? Absolutely. However – in order to do so effectively one needs be on their toes – and there is just more management involved – and stress – and work.

However – the butterfly spread – has, and continues to work incredibly well – even with volatility levels going off the map. I’ve traded calendars, and condors, and diagonals – and a lot of other option strategies through this more wild time in the market – and I have to say the strategy that stands out head and shoulder above the others is the butterfly spread. It’s the most robust – the most consistent – the easiest to manage – it absorbs big moves the best. It’s the trade the has given me the least amount of problems – and the most amount of profits.

Sure, I still do like – and trade – the other strategies – like the iron condor, the credit spread, the calendar, etc…

I just prefer – in a big way – the butterfly spread.

Oh mamma.

I get all emotional and choked up just thinking about it.

Hold on one moment please. Allow me to get my composure here…

All right. Here’s the deal…

If a good for nothing, toothless, smelly, pants-on-the-ground, gansta kicked open the door to my trading room, shuffled in and demanded at gun point that I choose just 1 trading strategy to trade for the rest of my days – without blinking an eye I’d select the butterfly spread.

Weekly Options Butterfly Spread – I love you.

Oh man…where’s a tissue…

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