Butterfly Options

If you are a chess player you already know the value of a good set of workable strategies. You are already also aware of the fact that there is no single strategy that can see you through all challenges. This same theory applies to the world of finance too, and no one can turn to the same techniques or systems over and over again in order to yield the same results.

For example, there is no such thing as a “one size” stock option trading system that can be used on a regular basis. While there are a wide array of strategies that should be put to work for a particular issue or market trend, there is not a single route or path that leads to success.

What has to happen before a good stock option trading system can be followed, however, is that the investor (in conjunction with their broker) must identify their overall goals, the amount of risk they are willing to take, and the amount of money they want to dedicate to the purchase of premiums and trades.

Clearly, the most common activities in any stock option trading system or plan will be the buying and selling of options. The major differences will be whether you are working with “call” or “put” options, and what the reasoning is for the transaction.

For example, the investor’s goal may be simply to hedge losses. In such a case, the investor will often purchase a put option as a means of insuring their original purchase price on a stock or commodity. This will guarantee them a specific selling price, but it doesn’t force them to actually sell off the particular issue should it enter into a bullish period or phase. In such a case they would have risked only the price of the premium.

As just demonstrated, this sort of approach indicates that an investor’s best system is the one that is designed to meet both short and long term goals. Not all investment plans will involve options trading, but those that do will usually have very clear cut goals or reasons for including such activities.

For example, all investors know that they must remain actively aware of overall market conditions as well as the values of their primary holdings. This means that they must have some plans in place for times when the markets are “bullish” or on the rise, “bearish” or declining, and even when they are neutral. A good plan or system is put in place to create income whenever possible, but to also guarantee against risk and loss too.