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training_data/curated/text/a346b04dd0cf0d5a2fcad825386fb9eade1163286bcee9fa7070e9ea110c475b.txt

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+The butterfly has lower nominal risk—only 0.10 compared with 0.35 for
+the call spread. The maximum reward is higher in nominal terms, too—0.90
+versus 0.65. The trade-off is what is given up. With both strategies, the goal
+is to have Walgreen Co. at $36 around expiration. But the bull call spread
+has more room for error to the upside. If the stock trades a lot higher than
+expected, the butterfly can end up being a losing trade.
+Given Ross’s expectations in this example, this might be a risk he is
+willing to take. He doesn’t expect Walgreen Co. to close right at $36 on the
+expiration date. It could happen, but it’s unlikely. However, he’d have to be
+wildly wrong to have the trade be a loser on the upside. It would be a much
+larger move than expected for the stock to rise significantly above $36. If
+Ross strongly believes Walgreen Co. can be around $36 at expiration, the
+cost benefit of 0.10 vs. 0.35 may offset the upside risk above $37. As a
+general rule, directional butterflies work well in trending, low-volatility
+stocks.
+When Ross monitors his butterfly, he will want to see the greeks for this
+position as well. Exhibit 10.6 shows the trade’s analytics with Walgreen Co.
+at $33.50.
+EXHIBIT 10.6 Walgreen Co. 35–36–37 butterfly greeks (stock at $33.50,
+31 days to expiration).
+Delta +0.008
+Gamma−0.004
+Theta +0.001
+Vega −0.001
+When the trade is first put on, the delta is small—only +0.008. Gamma is
+slightly negative and theta is very slightly positive. This is important
+information if Walgreen Co.’s ascent happens sooner than Ross planned.
+The trade will show just a small profit if the stock jumps to $36 per share
+right away. Ross’s theoretical gain will be almost unnoticeable. At $36 per
+share, the position will have its highest theta, which will increase as
+expiration approaches. Ross will have to wait for time to pass to see the
+trade reach its full potential.
+This example shows the interrelation between delta and theta. We know
+from an at-expiration analysis that if Walgreen Co. moves from $33.50 to
+$36, the butterfly’s profit will be 0.90 (the spread of $1 minus the 0.10