Transcript 下載/瀏覽Download

BUTTERFLY SPREAD
MA180106 Hui -Ting Lin 林卉婷
butterfly spread

The long butterfly spread is a three-leg
strategy that is appropriate for a neutral
forecast - when you expect the underlying
index level to change very little over the life of
the options.
What’s a Long Put Butterfly Spread Option position?

A Long Put Butterfly Spread Option Position is traded
when the option trader has a neutral view on the
price movement of the underlying stock or index ,the
underlying price movement is expected to remain
confined into a limited range . It offers capped
(limited) profit and capped (limited) loss potential.
It is usually a net debit position, the option trader
taking the Long Put Butterfly Spread Option position
has to pay a net option premium upfront.
Example
Here is a three-leg strategy, as we can see the Strike Price
is 7200,7400 and 7600, and the Premium is 26,57 and
122, therefore we can estimate that the max loss, max
gain and profit/loss. The net debit taken to enter the trade
is $34, which is also his maximum possible loss.
Long Put Butterfly Payoff Diagram
Breakeven Point(s)


There are 2 break-even points for the long put
butterfly position. The breakeven points can be
calculated using the following formulae.
 Upper Breakeven Point = Strike Price of Highest
Strike Long Put - Net Premium Paid
 Lower Breakeven Point = Strike Price of Lowest
Strike Long Put + Net Premium Paid
As we can see, the Upper Breakeven Point is 7566
and the Lower Breakeven Point is 7034.
Summary

A long butterfly spread is used by investors who
forecast a narrow trading range for the underlying
security, and who are not comfortable with the
unlimited risk that is involved with being short a
straddle. The long butterfly is a strategy that takes
advantage of the time premium erosion of an
option contract, but still allows the investor to have a
limited and known risk.
THANK YOU FOR YOUR ATTENTION!
Final Presentation