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training_data/curated/text/f43292bc6b57c3779fa0c7a26c0ea97787f2d2bd325dc7b56e0b3d5b9b846a1f.txt

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+Chapter 10: The Butterfly Spread 
+TABLE 10-1. 
+Butterfly spread example. 
+Current prices: 
+XYZ common: 
+XYZ July 50 call: 
+XYZ July 60 call: 
+XYZ July 70 call: 
+Butterfly spread: 
+Buy 1 July 50 call 
+Sell 2 July 60 calls 
+Buy 1 July 70 call 
+Net debit 
+60 
+12 
+6 
+3 
+$1 ,200 debit 
+$1,200 credit 
+$300 debit 
+$300 (plus commissions) 
+201 
+The risk is limited in a butterfly spread, both to the upside and to the downside, 
+and is equal to the amount of the net debit required to establish the spread. In the 
+example above, the risk is limited to $300 plus commissions. 
+Table 10-2 and Figure 10-1 depict the results of this butterfly spread at various 
+prices at expiration. The profit graph resembles that of a ratio write, except that the 
+loss is limited on both the upside and the downside. There is a profit range within 
+which the butterfly spread makes money - 53 to 67 in the example, before commis­
+sions are included. Outside this profit range, losses will occur at expiration, but these 
+losses are limited to the amount of the original debit plus commissions. 
+In accordance with more lenient margin requirements passed in 2000, the 
+investment required for a butterfly spread is equal to the net debit expended, which 
+is the risk in the spread. When the options expire in the same month and the strik­
+ing prices are evenly spaced (the spacing is 10 points in this example), the following 
+formulae can be used to quickly compute the important details of the butterfly 
+spread: 
+Net investment= Net debit of the spread 
+Maximum profit = Distance between strikes - Net debit 
+Downside break-even= Lowest strike+ Net debit 
+Upside break-even= Highest strike - Net debit 
+In the example, the distance between strikes is 10 points, the net debit is 3 
+points (before commissions), the lowest strike used is 50, and the highest strike is 70. 
+These formulae would then yield the following results for this example spread.