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Chapter 9. Two Basic Sideways Strategies > Chapter 9 Major Learning Points

Chapter 9 Major Learning Points

In this chapter we’ve learned how a Butterfly and a Condor can be used to trade stocks that are caught in a horizontal price channel. Because we’ve taken a real life example without the benefit of hindsight, we’ve been able to analyze and explore a trade that we simply wouldn’t do (that is, the Condor here). By the time you read this, you’ll see what the net result would have been at the July expiration date (July 20, 2001).

Ideally, you’re looking for consolidating or rolling stock patterns with clearly defined lines of support and resistance. The Butterfly is an easier trade to place because it involves just three legs and is therefore easier to place the spread centrally around the current stock price. The Condor can run into problems because it is typically more expensive than the nearest equivalent Butterfly and, as happened in our example here, you may not be able to find the optimum strike prices to construct the trade.


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