Most people that trade options, they’re really looking for at least the day trading part.
They’re looking for just a directional price move.
Although you could do that, I want to share with you another approach that could open up your mind a little bit.
I’m going to show you this concept. This is going to be on Amazon.
Currently, the market is pulling back a little bit.
Now you take an approach and think this will go up or it’ll go down.
A little bit more of a guessing game.
- You could also pair that with time decay.
- You could also do directional.
- You could also tweak it a little more to the upside tweak a little more to the downside
But what you could also do is focus in on making your money and profits more from time decay.
How would I go about doing this?
Let’s take a look at doing a 2-day butterfly.
If let’s say we go to the 20.45 and I’ll buy a butterfly right here.
This is basically a short duration trade.
The reason I would do a short duration here is basically because the speed of the time decay is exceptionally fast.
Now what I’m going to do is widen kind of some of these wings.
Here we’re not really looking for price movement, we’re looking more for time movement or basically time decay.
So within basically a day or so, what you could do is within two days as long as kind of in this range or ballpark.
Basically using about 218 dollars to capture about 145 or maybe 130 in a day or two.
The thing is, execution is very critical in these trades.
You only got two days in the trade.
So if you ramp it up, let’s say five contracts.
You’re using about a thousand bucks.
You’re in these trades and then you’re you’re out pretty quickly.
So let’s just say we’ll do four contracts right here.
Once you put that order in, you’ll notice that your theta decay and time decay is going to be exceptionally fast.
What you can do is immediately put a sell order in for let’s say a little bit higher.
That way you can try and get filled maybe by the luck of the draw.
You might get filled and get your profits because it is fast.
We’ve got 121 theta, it is a 2-day trade to expiration.
You are not going to hold this for a long period of time.
But already you can see the theta is wiggling around there and the decay is fast.
So you might be in and out of this trade very quickly.
I could just put this trade in right now. Let’s just see if I bump it up to three dollars even, I’d be up 340 dollars.
It’s probably not going to get filled but this is what you do.
You put this trade in and you see that you’re able to get out and just let the order sit.
If you wait until the point of where it hits your profit target, you might be waiting a long time for that.
Basically, you put it in and then what’s going to happen is it moves on you by the time you put the order in.
So it’s important to just go ahead and put that order in right away.
You’re just letting it sit and marinate.
That could sit there for 5 minutes, for 20 minutes or for 2-3 hours.
But doing these a couple days before can get you an exceptionally fast data.
As long as price somewhat stays stable relatively in this range, even for the day, you should be pretty good.
Now the other approach to doing this is if you want to be a little more directional.
You can make even more money if you’re going to start choosing a direction in this case.
You’re ramping up some contracts and you can basically choose a direction.
Now by going a little out of the money, it allows you to be a little more cheaper on those trades.
So you could also stack some contracts there.
But remember — it’s got to move.
That’s the that’s the one big downside is it actually has to move in your direction.
It’s got to do that within a day or two
Sometimes if you do it right in the morning and it’s moving in that direction.
You can catch the momentum and it keeps doing that, that could be fantastic.
But that may not always be the case.
Be a little more careful with that as you do those things.
You could also skew things a little bit where if it does go against you where your risk is less,
but then down here the risk is more
But remember with time decay, it ramps up.
So you could do something weird like that in a trade situation.
Here’s a trade idea, where basically I’m doing kind of a bullish butterfly in a way.
But if it does pull back 2 days into it, I’ll be even more profitable over here on the back side.
So doing something like this could be also another powerful trade idea or strategy.
Anyways, I would normally do a balanced one, personally.
But if you want to take a little different approach, it’s totally up to you.
Remember, this was just a 2-day butterfly here that we’ve had.
It’s just two days left in the trade — there’s not a lot of time in the trade.
So you’re really in the trade and out of the trade pretty quickly.
It’s basically like a day trade in a way.
Could you be in the trade longer? Yeah.
But the most important thing I would say is, when you put these trades on, don’t forget to put in your sell order with it shortly after.
If you’re waiting for those profits and wait till you see it on your screen, you might already have missed out on the trade.
So be a little more careful and cautious with that.
Other than that, I hope you found this helpful insightful and gave you some things to think about definitely.
Check out our website here at tradersfly.com as you go there.
There’s a lot of great freebies that you can check out and some getting started guides, as well.