24 lines
1.1 KiB
Plaintext
24 lines
1.1 KiB
Plaintext
Butterflies
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Butterflies are wing spreads similar to condors, but there are only three
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strikes involved in the trade—not four.
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Long Butterfly
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Long one call (put) with strike A; short two calls (puts) with a higher strike,
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B; and long one call (put) with an even higher strike, C. The options are on
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the same security, in the same expiration cycle, and are either all calls or all
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puts. The difference in price between strikes A and B equals that between
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strikes B and C.
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Long Butterfly Example
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Buy 1 XYZ December 50 call (A)
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Sell 2 XYZ December 60 call (B)
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Buy 1 XYZ December 70 call (C)
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Short Butterfly
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Short one call (put) with strike A; long two calls (puts) with a higher strike,
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B; and short one call (put) with an even higher strike, C. The options are on
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the same security, in the same expiration cycle, and are either all calls or all
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puts. The vertical spread made up of the options with strike A and strike B
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has the same distance between the strike prices of the vertical spread made
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up of the options with strike B and strike C.
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Short Butterfly Example
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Sell 1 XYZ December 50 call
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Buy 2 XYZ December 60 call
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Sell 1 XYZ December 70 call |