班級：碩研財金一甲
指導教授：張上財
學號：MA180101
姓名：劉芷綾

Purpose
• What is the butterfly option spread ？
• The butterfly spread is put together to create a low risk, low reward options strategy and is designed to take advantage of a market or stock that is range bound.
• The butterfly can be created using call options or put options.

Purpose
• What is the butterfly option spread ？
• The strategy is termed "butterfly" due to the shape of the risk characteristics graph you see below; notice the two wings and then the larger body.
• The butterfly spread is constructed through buying 1 long ITM call, shorting 2 ATM calls, and buying 1 long OTM call.
• The ratio between the 3 options should be 1:2:1 and the distance between the strike prices of the long options should be equidistant from the short call strike.

Purpose
•
• The short butterfly is a neutral strategy like the long butterfly but bullish on volatility.
• It is a limited profit, limited risk options trading strategy.
• There are 3 striking prices involved in a short butterfly spread and it can be constructed using calls or puts.

Purpose
•
• Using calls, the short butterfly can be constructed by writing one lower striking in-the-money call, buying two at-themoney calls and writing another higher striking out-of-themoney call, giving the trader a net credit to enter the position.

Purpose
• The timing of buying short butterfly
- Investors expect that the variation in prices is great.
- Investors expect that the index will be upward or downward and the profit/risk is limited.
- Investors will have the benefit of the time value.
• The short spread and the bull spread of the strike price are the same spacing.

Purpose
•
- Its profit and risk are limited.
- It is a conservative operating strategy.
- Investors do not want to take too much risk.
- The short butterfly is a good choice.

Purpose
•
- To sell a unit high strike price at the same time with a low strike price call.
- To buy two units of the call at the same price is simultaneous.
- It can be compose by all call or put.

Purpose
• Limited Profit
• Maximum profit for the short butterfly is obtained when the underlying stock price rally pass the higher strike price or drops below the lower strike price at expiration.
• If the stock ends up at the lower striking price, all the options expire worthless and the short butterfly trader keeps the initial credit taken when entering the position.
• However, if the stock price at expiry is equal to the higher strike price, the higher striking call expires worthless while the "profits" of the two long calls owned is canceled out by the "loss" incurred from shorting the lower striking call.
• Hence, the maximum profit is still only the initial credit taken.

Purpose
•
─ When the spot price closed below the lowest strike price or above the highest strike price at maturity.
– Max Profit = Net Premium Received - Commissions
Paid
– Max Profit Achieved When Price of Underlying <=
Strike Price of Lower Strike Short Call OR Price of
Underlying >= Strike Price of Higher Strike Short Call

Purpose
•
- Maximum loss for the short butterfly is incurred when the stock price of the underlying stock remains unchange at expiration.
- At this price, only the lower striking call which was shorted expires in-the-money. The trader will have to buy back the call at its intrinsic value.

Purpose
• Max loss
– When the spot price close above the middle strike price at maturity.
– Max Loss = Strike Price of Long Call - Strike Price of Lower
Strike Short Call - Net Premium Received + Commissions
Paid
– Max Loss Occurs When Price of Underlying = Strike Price of
Long Calls

Purpose
•
– Upper Breakeven Point = Strike Price of Highest
Strike Short Call - Net Premium Received
– Lower Breakeven Point = Strike Price of Lowest
Strike Short Call + Net Premium Received

Content
•
•
•
•
•
•
•
•
H

Buy
Sell
Sell
Strike price
Call
Transaction price
7300 94
7000
7600
238
29
Quantity
2
1
1

Call
Buy 7300 -94
7394
7300 (-94)
7000 (+238)
7238
Call
Sell 7000 +238
Content
Call
Buy 7300 -94
Sell 7000 +238
238-94=144
238-300=-62
-94
7000 (+144)
-156
7144
7300 (-156)

Call
Buy 7300 -94
7394
7300 (-94)
7600 (+29)
7629
Call
Sell 7600 +29
Content
Call
Buy 7300 -94
Sell 7600 +29
-94+29=-65
300-65=235
7600(+235)
7365
7300 (-65)

+ $
0
- $
Content
7000 (+79)
Buy
Sell
Sell
7079
Call
Strike price
7300
7000
7600
Transaction price
94
238
29
7521
7600 (+79)
79
7300 (-221)
221 stock price at expiration
94x2=188
188-238-29=-79 or
+144-65=-79
300-79=221 or
-156-65=-221

Conclusion
Max profit
Write Butterfly
79
Max loss
Upper Breakeven Point
Lower Breakeven Point
221
7521
7079