Neutral Options - High Probability Options Spreads
Neutral Options are a very sound strategy in options trading.
They combine balanced risk and reward ratio with a high probability of profit
and wide profit zone.
Neutral options come in three main flavors: short strangles & straddles, butterflies, and iron condors.
Short strangle/straddles usually require very large account margins but
provide the highest probability of profit
and have unlimited risk. Butterflies are four option spreads using all calls or all puts. Iron condors
are four option spreads which combine both calls and puts.
Here are the six option spreads that we will be using for neutral options strategies:
Short Straddle = Sell at the money call (sac) + Sell at the money put (sap)
Short Strangle = Sell out the money call (soc) + Sell at the money put (sop)
Butterfly Call = Buy out of the money call (boc) + Sell 2 at the money calls (2sac) + buy in the money call (bic)
Butterfly Put = Buy out of the money put (bop) + Sell 2 at the money puts (2sap) + buy in the money put (bip)
Iron Condor = Buy out of the money call (bop) + sell at the money call (sac) + sell at the money put (sac) + buy out of the money put (bop)
Iron Condor (flat) = Buy further out of the money call (bOp) + sell out of the money call (soc) + sell out of money put (soc) + buy further out of the money put (bOp)
Choose your neutral spread strategy:
SHORT STRADDLE / STRANGLES
Neutral Spread Summary Table:
|NEUTRAL SPREAD||PROFIT ZONE||REWARD TO RISK RATIO||COMMISSION|
|Iron Condor||Wide||Balanced||4 options|
|Short straddle / strangle||Wide||Unlimited Risk||2 options|
|Butterfly||Narrow||Higher reward||4 options|
Neutral options spreads are indeed a very complex and commission hungry
They do require a greater amount of analysis work and monitoring.
With patience and a bit of statistical homework we can make neutral options spreads
a tool for steady profits in options trading.
Copyright 2001 Star Research, Inc.
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