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Level 4 of 5
Advanced Traders
Who it’s for:Traders who have experience managing multi-leg option trades and want to optimize risk/reward.
Goal: Cover advanced strategies like butterfly spreads, calendar spreads, and synthetic positions. Introduce Greeks for trade management.
Advanced Options Strategis
Synopsis:Completing Level 4 equips traders with advanced skills in complex multi-leg strategies, Greeks management, and trade adjustments. The final stage, Level 5: Expert-Level Trading, will cover professional risk management and advanced hedging techniques to dynamically maintain portfolio neutrality.Free Lessons at https://majorwager.app
Lesson 1: Butterfly Spreads
What is a Butterfly Spread?
A butterfly spread is an advanced, low-risk strategy involving buying and selling multiple options with three strike prices, designed to profit from minimal stock movement.
Example of a Butterfly Spread:
- Stock: AMZN at $100
- Buy 1 AMZN $95 Call at $7
- Sell 2 AMZN $100 Calls at $4 each ($8 total)
- Buy 1 AMZN $105 Call at $2
- Net Cost (Debit): $1 per share
Possible Outcomes:
- Max profit if AMZN closes exactly at $100 (peak profit area).
- Limited risk (maximum loss = initial debit) if AMZN moves significantly above $105 or below $95.
Why Use Butterfly Spreads?
- Defined risk with a high potential reward.
- Ideal in low-volatility markets where stocks trade within a small range.
Lesson 2: Condor Spreads
What is a Condor Spread?
A condor spread is similar to a butterfly but with four different strike prices. It offers wider profit ranges compared to butterfly spreads.
Example of a Condor Spread:
- Stock: NFLX at $400
- Buy 1 NFLX $390 Call at $12
- Sell 1 NFLX $400 Call at $8
- Sell 1 NFLX $410 Call at $6
- Buy 1 NFLX $420 Call at $3
- Net Cost (Debit): $1 per share
Possible Outcomes:
- Profit if NFLX stays between $400 and $410.
- Limited loss if NFLX moves outside the $390–$420 range.
Why Use Condor Spreads?
- Profit in range-bound markets.
- Greater probability of profit than single-leg trades.
Lesson 3: Synthetic Positions
What are Synthetic Positions?
Synthetic positions replicate the payoff of stocks or options using different combinations of calls and puts.
Example of Synthetic Long Stock:
- Buy 1 Call option
- Sell 1 Put option (same strike price, same expiration)
- Mimics the exact risk and reward of owning 100 shares of the underlying stock.
Why Use Synthetic Positions?
- Allows traders to simulate stock ownership using less capital.
- Useful for arbitrage and efficient capital management.
Lesson 4: Managing Positions Using Greeks
What is a Calendar Spread?
A calendar spread involves selling a short-term option while buying a longer-term option at the same strike price, benefiting from time decay.
Example of a Calendar Spread:
- Stock: NVDA at $450
- Sell NVDA $450 Call expiring in 2 weeks for $5
- Buy NVDA $450 Call expiring in 1 month for $8
- Net Cost (Debit): $3 per share
Why Use Calendar Spreads?
- Profits from slower movement in the underlying stock.
- Takes advantage of faster time decay in near-term options.
- Works best in neutral markets.
Lesson 5: Adjustments and Repair Strategies
What are Adjustments and Repairs?
Adjustments and repairs involve modifying existing trades to manage risk, reduce losses, or lock in profits as market conditions change.
Common Adjustment Techniques:
- Rolling options (up, down, or out in time)
- Adding complementary trades to offset risk
- Transforming losing positions into new strategies to recover losses
Example of a Trade Adjustment:
- Original trade: Bull Call Spread with limited profitability due to market downturn.
- Adjustment: Roll down short call strike price to reduce overall cost and increase chance of breakeven or profit.
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Continue to the final stage Level 5: Expert-Level Trading where we will cover professional risk management and advanced hedging techniques to dynamically maintain portfolio neutrality.
