Long Put Vs Long Call Butterfly (2024)

FAQs

Long Put Vs Long Call Butterfly? ›

Compare Risks and Rewards (Long Put Vs Long Call Butterfly)

Variations. The long call butterfly and long put butterfly, assuming the same strikes and expiration, will have the same payoff at expiration. They may, however, vary in their likelihood of early exercise should the options go into-the-money or the stock pay a dividend.

A long put is similar to a long call except that the trader will buy puts, betting that the underlying stock's price will decrease. Suppose a trader purchases a one 10-strike put option (representing the right to sell 100 shares at $10) for a stock trading at $20. Each option is priced at a premium of $2.

If the stock price closes above the higher strike long call or below the lower strike long call, the maximum loss will be realized. A call butterfly is used when the underlying asset is expected to stay within a small range before expiration.

The major difference is that Long Call/Put Butterfly strategies are net debit strategies, while Short Iron Butterfly is a net credit strategy.

A Bull Call Spread is made by purchasing one call option and concurrently selling another call option with a lower cost and a higher strike price, both of which have the same expiration date. Furthermore, this is considered the best option selling strategy.

The 1–1–2 options strategy is typically implemented as a 120 days-to-expiration (DTE) trade. This longer time frame allows for the theta decay to work in favor of the short options while providing ample time for the trade to develop and for adjustments to be made as needed.

Long Call Butterfly can be devised by Buying One lot In-the-Money (ATM) Call, selling 2 lots At-the-Money (ATM) Calls and Buy 1 lot Out-of-Money (ATM)Call of the same underlying and expiration, while the difference between the strike price should be equal.

8. Long Call Butterfly Spread. For example, a long butterfly spread can be constructed by purchasing one in-the-money call option at a lower strike price, while also selling two at-the-money (ATM) call options and buying one out-of-the-money call option. A balanced butterfly spread will have the same wing widths.

The position at expiration of a long butterfly spread with calls depends on the relationship of the stock price to the strike prices of the spread. If the stock price is below the lowest strike price, then all calls expire worthless, and no position is created.

Is butterfly better than iron condor? ›

An iron butterfly might collect more premiums than an iron condor since its short bets are positioned close to or at the asset's current price. If everything works well, you can always make extra money with an iron butterfly. If you expect extreme volatility, this is the approach to use.

Finally, the iron butterfly offers versatility and can be adjusted according to changing market conditions. If the underlying asset's price shifts or if market volatility increases, traders can modify the position by rolling the options to different strike prices or expiration dates.

A put butterfly is created by selling-to-open (STO) two put options at the same strike price and buying-to-open (BTO) long put options above and below the short put options. All four legs of a put butterfly have the same expiration date. The short puts do not need to be sold at the money.

Short put butterfly is a trend neutral strategy but bullish on volatility. It assumes that asset prices will not move beyond a certain level. Short call butterfly is a trend neutral strategy and bullish on volatility. It offers a limited risk/rewards situation.

A butterfly (fly) consists of options at three equally spaced exercise prices, where all options are of the same type (all put or all call) and expire at the same time. You may add a filter on this page to show only a specific strike price for any of the strategy's legs.

Max Loss. The maximum loss would occur should the underlying stock be outside the wings at expiration. If the stock were below the lower strike all the options would expire worthless; if above the upper strike all the options would be exercised and offset each other for a zero profit.