Short Call Butterfly

Short Call Butterfly Option Strategy Graph

B/SStrikeTypePrice
Sell 1$48Call$2.62
Buy 2$50Call$1.43
Sell 1$52Call$0.67
Net Credit($43)

A Short Call Butterfly is long two ATM call options, short one ITM call option and short one OTM call option.

The Max Loss is limited to the net difference between the ATM strike less the ITM strike less the premium received for the position.

The Max Gain is limited to the net premium received for the option spread.

Characteristics

When to use: When you are neutral on market direction and bullish on volatility. Neutral on market direction meaning that you want the market to move in either direction - i.e. bullish and bearish at the same time.

Short Call Butterfly's have a similar pay off to the Long Straddle in that the downside risk is limited. A Short Butterfly's risk is limited to the premium paid for the three options.

Short Call Butterfly Greeks

Delta

Short Call Butterfly Delta Graph - 30 Days to Expiration
Short Call Butterfly Delta Graph - 3 Days to Expiration

Gamma

Short Call Butterfly Gamma Graph - 30 Days to Expiration
Short Call Butterfly Gamma Graph - 3 Days to Expiration

Vega

Short Call Butterfly Vega Graph - 30 Days to Expiration
Short Call Butterfly Vega Graph - 3 Days to Expiration

Theta

Short Call Butterfly Theta Graph - 30 Days to Expiration
Short Call Butterfly Theta Graph - 3 Days to Expiration

Comments (4)

PeterFebruary 14th, 2012 at 4:49pm

Hi Azad,

Not with a short butterfly. If you are bearish and want some upside protection then I suggest you take a look at a Put Backspread.

AzadFebruary 14th, 2012 at 10:27am

Hi Peter,

Is their any unlimited potential of profit in this strategy. I am bearish on Indian market which is the best strategy I used with protection.

PeterJuly 28th, 2011 at 6:23pm

For American options on stocks yes, especially as the stock approaches its ex-dividend date. Long call option holders may exercise for stock so they can receive the dividend.

shaivalJuly 28th, 2011 at 4:20pm

Is there any risk of getting option assigned?

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