Options Trading for Beginners: A Crash Course on How to Build a Passive Income in 2020 and How to Trade Stocks for a Living. Become a Swing Trader RIGHT NOW by Robert Douglas

Author:Robert Douglas [Douglas, Robert]
Language: eng
Format: mobi
ISBN: 9798665399102
Publisher: Independently published
Published: 2020-07-11T05:00:00+00:00

Reverse Iron Butterfly

This is a volatile strategy that is used when a trader believes that the price of the associated asset will move sharply in price but is not sure in which direction. Thus, this strategy is created to gain a profit no matter the direction. It requires 4 transactions and they are:

Sell 1 out of money put

Buy 1 at the money put

Buy 1 at the money call

Sell 1 out of money call

The profit gained in this type of strategy is limited and is achieved when the associated asset price drops below the strike price. The formula for this is:

Width of the two Strike Prices - Net Premium Paid - Commissions Paid = Profit

Loss occurs when the stock price is the same as the strike price on the expiration date. This is calculated with this formula:

Net Premium Paid + Commissions Paid = Loss

The 2 breakeven points for this strategy are calculated like this:

Strike Price of Long Call + Net Premium Paid = Breakeven

Strike Price of Long Put + Net Premium Paid = Breakeven

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