Vanilla Options Butterfly Spread Strategies
Butterfly spreads are utilized as a market-neutral strategy which combines bull and bear spreads giving the investor a fixed risk and a capped profit. These types of spreads pay the most profit if the market (underlying asset) does not move prior to the expiration of the option.
Key Points
• Combines bull and bear spreads
• Fixed risk with capped profits
• Pays most profit when underlying asset doesn’t move
• Use four options and three different strike prices
• Upper and lower strikes are the same distance from the two at-the-money strikes
• Same expiration date for all call or put options
• Same asset for all options
As mentioned above, the options with the higher and lower strike prices ...
Get Mastering Options now with the O’Reilly learning platform.
O’Reilly members experience books, live events, courses curated by job role, and more from O’Reilly and nearly 200 top publishers.
