With technological advances, traders are continually innovating through their methods of execution. Robotic trading is an impressive tool that automatically manages trades with a pre-programmed strategy. While the butterfly spread is well-known as one of the most exciting options strategies due to its risk-defined nature and high potential returns, combining this with position trading, a long-term trading style, can make for an effective system that doesn’t require hands-on intervention for much of the trading process.
In this blog, we describe a strategy for options trading that results in a robotic butterfly, something where the automation blends right into a position trading approach. Your ability to leverage market opportunities while managing risk will be attributed to your use of automation.
What is Robotic Trading?
Robotic trading, also known as algorithmic trading, is the use of algorithms in a computer that automatically executes trades based on specific criteria. This reduces human emotions and inefficiencies from trading, therefore making it more precise, systematic, and less prone to human errors. Tools like Tradetron make strategy creation and deployment very easy to do without manual execution.
What is the Butterfly Options Strategy?
The butterfly strategy is an advanced options strategy for profiting from low volatility. This involves multiple option contracts with three different strike prices to form a “butterfly” shape when plotted on a graph. What the butterfly strategy features is this:
Buy one option at a lower strike price.
Sell two options at middle-strike prices.
Buy one option at a higher strike price.
This is a strategy typically carried out when the trader expects that the price movement in the underlying will be minimal. It poses a limited risk and has limited rewards, hence being preferred by those trading with conservative profit opportunities.
What is Position Trading?
Position trading is considered a long-term strategy where the traders hold the positions for weeks, months, or even years. Position traders benefit from huge, steady price moves as against the day and swing traders. This means that much speed and quick decisions are not necessary in this approach to trading but rather a knowledge of the market’s fundamentals. Strategic use of a butterfly strategy in position trading can allow a trader to benefit during periods of low volatility and to maintain their long-term position.
Steps to Make a Robotic Butterfly Strategy to Trade in Options for Position Trading
Choose the Right Platform to Trade Robotically
Start with choosing a genuine platform that supports algorithmic trading. Tradetron lets the traders choose several triggers with their corresponding conditions for your strategies and also supports options trading, so it is an ideal one for trading this strategy in automation
Choose Your Underlying Asset
A butterfly in options is when you choose the underlying as the asset you think is going to be low in volatility. Most of the time, assets of low volatility or those that are consolidating can be good choices for a butterfly strategy. For the position trade, you’ll need to pick an asset that also might fit in with your overall goals for trading.
Implement a Butterfly Strategy
You can easily set up a butterfly in a robotic trading system like Tradetron by simply defining the following parameters:
Buy 1 call (or put) option at a lower strike price: This is the hedge in case the markets move too much
Sell 2 call (or put) options at middle strike price: This is the body of the strategy, from where the premium income is generated.
Buy 1 call (or put) option at a higher strike price: This option limits the risk exposure.
You may adjust the strike prices to be equidistant from each other creating what is called a “balanced butterfly” or you can adjust the levels for an “unbalanced butterfly” depending on your view of the marketplace.
Risk Management
Another feature of robotic trading that’s very important is position sizing and risk management. Your algorithm can set its position size relative to your portfolio so that you won’t blow up your money with one single trade. You can also define stop-loss levels and exit points to automatically lock in your profits and limit your losses, respectively.
Set Up Monitoring with Conditions
As soon as you publish your strategy in the form of a robotic butterfly, you can see how that strategy is doing based on predefined conditions. For example, you may create a rule to automatically reposition or close as soon as the market moves in a direction contrary to what you forecasted or when the time value of your positions begins to affect them significantly. All these rules could be written in Tradetron so that automatic adjustment of a strategy to the conditions of the market can be made without the need for doing so manually.
Add with Position Trading Strategy
Since position trading involves holding onto securities for a long period, it means that combining the butterfly strategy gives an added assurance of protection or enhanced profitability during periods of low volatility. Use the robotic butterfly strategy whenever you are waiting for a minimal price movement so that the longevity of your holding positions will benefit from the stability of prices.
With these two strategies, there is much less risk and increased chances for profit during stagnant periods in the market.
Advantages of Position Trading Using a Robotic Butterfly Strategy
No need for continuous monitoring of prices: A robotic strategy will automatically execute the butterfly trade so that you spend more time out of price-watching monitors.
Clear risk vs. reward: once you implement the butterfly strategy, you clearly see the risk to the rewards, which helps you control it even better-using algorithms.
It is best for low-volatility environments, allowing you to take advantage of market conditions of market conditions while holding your position trading goals.
Flexibility: Position trading combined with the butterfly strategy lets you diversify your trading approach so that you end up profiting in any market conditions.
Conclusion
With the strategy of robotic butterfly in options for position trading, you can really catapult your trading performance. Now, you may leave the execution to Tradetron’s algorithm and have a go at developing other strategies. Thus, the butterfly strategy gives a well-defined risk-reward profile, and with this strategy further combined with the long-term approach of position trading, every risk is well-managed and profits are properly accumulated. Start harnessing the power of robotic trading today to catapult your trading strategies to new heights.
FAQs
What is robotic trading?
Robotic trading, or algorithmic trading, is automatically sending trades based on predetermined conditions and strategies through computer algorithms.
What is the butterfly strategy in options?
A butterfly strategy refers to an options trading strategy where one buys one option at a lower strike price, sells two options at the middle strike price, and buys another option at a higher strike price.
How does position trading work?
Position trading is a long-term strategy. The position is held for extensive periods of time to capture large price moves over time.
Is it possible to automate the butterfly strategy?
 Yes, Tradetron allows the automation of this butterfly strategy that executes trades hands-free.
What are the advantages of the combined butterfly strategy with position trading?
This way, a combination of these strategies allows you to take advantage of low-volatility periods while maintaining a long-term investment approach, effectively diversifying your trading strategy.
