A butterfly is a limited risk, non-directional options strategy that is designed to have a high probability of earning a limited profit when the future volatility of the underlying asset is expected to be lower or higher than that asset's current implied volatility.
expiration date.
This strategy makes profit if the underlying stock is at the body of the butterfly at expiration. Combining two short calls at a middle strike, and one long call each at a lower and upper strike creates a long call butterfly. The upper and lower strikes (wings) must both be equidistant from the middle strike (body), and all the options must have the same
This strategy profits if the underlying stock is outside the wings of the butterfly at expiration. A short call butterfly consists of two long calls at a middle strike and short one call each at a lower and upper strike. The upper and lower strikes (wings) must both be equidistant from the middle strike (body), and all the options must have the same expiration date.
This strategy profits if underlying stock is at body of the butterfly at expiration. A long-put butterfly is composed of two short puts at a middle strike, and long one put each at a lower and a higher strike. The upper and lower strikes(wings) must both be equidistant from the middle strike (body), and all the options must be the same expiration.
This strategy profits if the underlying stock is outside the wings of the butterfly at expiration. Buying two puts at a middle strike, and selling one put each at a lower and upper strike results in a short put butterfly. The upper and lower strikes (wings) must both be equidistant from the middle strike (body), and all the options must be the same expiration.
Modified Call Butterfly is similar to Long Call Butterfly, but the difference between the strike of the middle Call and the higher Long Call is smaller than the difference between the strike of the lower Call and the other middle Call. Consequently, the profit is maximised when the share price closes close to the
middle components’ strike price. This strategy requires the investor to pay close attention to details. To establish the position, the trader must buy a lower strike ITM Long Call, sell two middle ATM Short Calls, and buy a higher strike OTM Long Call. The investor can profit from increasing share prices or the share prices moving within given limits.
Modified Put Butteífly is similaí to Long Put Butteífly, but the diffeíence between the stíike of the middle Call and the higheí Long Call is smalleí than the diffeíence between the stíike of the loweí Call and the otheí middle Call. ľhis stíategy is veíy similaí to the Modified Call Butteífly. ľhe píofit is maximised when the shaíe píice closes close to the middle components’ stíike píice. ľhis stíategy íequiíes the investoí to pay close attention to details. ľo establish the position, the tíadeí needs to
have a loweí stíike Long Put, two middle AľM Shoít Puts, and higheí stíike OľM Long Put in the poítfolio. ľhe investoí can píofit fíom incíeasing shaíe píices oí the shaíe píices moving within given limits.
A straddle is an options strategy involving the purchase of both a put and call option for the same expiration date and strike price on the same underlying security. The strategy is profitable only when the stock either rises or falls from the strike price by more than the total premium paid.