butterflies and condors

I think he meant calls anyway.
It can not be put if 520 cost less then 510...

 

Possibly I was not looking at the premiums, just the strikes.

 

i think i understand. to be short you must own the stock and sell (write) those two parts of the butterfly and buy the other two. a butterfly consists of writing 2 contracts to sell and 2 long purchases.

if a person does not own 100 shares of that stock, they cant write options, therefore they cannot use a butterfly as a strategy.

is this correct?

Thanks.

 

No that is INCORRECT. A butterfly has nothing to do with the stock. You can buy or sell butterflies without touching the stock. i think before you try and understand butterflies you should start with options basics. The short optionsin the spread are covered by the long options in the spread.

What is a call
What is a put
What is a spread etc..

www.888options.com

 

basicly, to be short on option, or most correct to say to be "naked" short - you need to put money on side as insurance that if the stock will go down (in case of short calls) you will have the money to pay to the option buyer.
u can also hold the stocks and use that money to write options.

BUT

in here is a big but, in the buttefly strategy, basicly the 2 longs covers your 2 shorts. and that means that in any price of expirnation of the stocks, you could not lose more then what the butterfly cost you. you can check it up and see that the long options covers your short and in any case you will not need to bring more money.

the one who do short buttefly, he has a chance to lose up to 10 (if its 10 pts strikes) less the primium he got from you, so he will need to give that money as insurance untill the options will expire.

 

No, that is not correct. You do not need to own shares to be short options.

 

let me try to understand in a butterfly you will buy two options, and because you then have position in the stock, sell (write) two. Hence, you dont have to own the stock to sell it because you have already purcased 2 options.

Is this correct?

Thanks

 

thanks for the info, optioncoach. any information is welcome to me. im very green but eager to learn about options. options are facinating to me.

Thanks

 

Take the word stock and throw it away when discussing butterflies, dont mention the word stock anymore with respect to butterflies lol

.

You are putting the cart way before the horse here.

You do not understand the basics of options and trying to understand a butterfly or spreads in general.

Take my advice and forget butterflies for right now and just focus on the questions I posted above:

What is a call and how does it work?
What is a put and how does it work?
What is a spread such as a bull call spread and a bear put spread?
What is a credit spread such as a bear call spread and bull put spread?

If you cannot answer these questions or understand the answers then keep studying until you do. I guarantee that if you understand these 4 questions, butterflies will make perfect sense to you.

But for now, put down the butterfly book and pick up the basics book. You are not ready for the winged creature.

 

thanks again for the advice, optioncoach. the cart is in front of the horse! to the basics...

Thanks.