A great tactic for income traders who think the stock or index they’re trading will most likely stay contained within a range for the short term is the butterfly spread .

This theta positive option trading method produces profits when the stock or index that is getting traded remains within a contained area on the graph or ends up on expiration day at or near the sold strikes of this trade.

Here is an example of a butterfly spread position:

Buy 5 contracts of QQQQ 44 put. Sell 10 contracts of QQQQ 46 put. Buy 5 contracts of QQQQ 48 put.

These trades can generate quick gains for the investor as a result of the short strikes in the position (the strikes that have been sold) providing so much premium into the traders account. This is because the strikes that are usually sold in these trades are the ‘at the money’ strikes – or the strikes that reside closest to where the underlying is actually trading at when the trade is first put on. The ‘at the money’ strikes always contain the most amount of time premium, which is what option traders are looking to benefit from when trading these type of income positions.

Whilst you will find numerous variations of the butterfly strategy, the two most frequent are the regular butterfly spread which is set on for a debit, as well as the iron butterfly, which is placed for a credit. Although these are two different versions of the butterfly spread, when you compare them next to each other on a a risk graph, they look identical. While the trade is in progress, they act identical too. With both versions of this technique, it will be the short strikes, or the strikes that are sold at the money, that provide the trader with profits.

The butterfly method is a ‘delta neutral’ trade, meaning that investors who use this technique either don’t have an opinion on marketplace direction or believe that the underlying being traded will remain in its general vicinity on the price chart for the duration with the trade.

When traded correctly, the butterfly spread can be an very profitable, low tension, and quite enjoyable trade that needs very little time and energy having to manage.

To find out more about this strategy, visit this Butterfly Spread Training Website for tons of free training videos, examples, reports and easy step by step instructions on how to trade this strategy to generate a consistent income.