The butterfly options spread

The butterfly spread, or to be more precise the long butterfly spread, is a relatively advanced neutral options trading strategy with limited loss and limited profitability. It is normally put on for a debit, which places it in the category of debit spreads. Let us have a closer...

Put options explained

For someone who only has experience of trading in stocks (shares), the concept of benefiting when the price of a trading asset declines is often difficult to grasp. This is, however, exactly what happens if a trader buys a put option: he or she benefits from a drop in the price...

Options strangles explained

A long strangle is a trading strategy used in volatile markets when the trader expects the price of the underlying asset to break out upwards or downwards. As such it will profit with both a strong upward and a strong downward price movement. Fig. 8.16 is a risk/reward chart for...

Options long straddles explained

The long straddle is an options trading strategy which is perfectly suited to a volatile market where the trader is not certain whether the underlying trading asset will break out to the upside or downside. As such it will be profitable with either a large increase or decrease in...

How leverage works with options

While the concept of leverage is as old as science itself and dates back to Archimedes, exactly how it relates to options trading is a fairly new field of study which could be somewhat harder to comprehend – yet it is vital for every options trader to understand. A very simple...

Call options explained

For novice traders, the long call is usually the first type of options trade they encounter. Buying long call options comes closest to what most of us are familiar with: trading in shares, currencies or commodities. A long call option is the right, but not the obligation, to buy...

The strike price of options explained

Many novice options traders find it difficult to understand the concept of strike price when it comes to options. This is especially true when they are confronted with a so-called ‘options chain’ and they find out there are many different strike prices for the same option with...