Butterfly Spread
Buy 2 options, sell 1 middle strike
Positions in Chart: Buy 25600 CE, Sell 2 lots of 25800 CE, Buy 26000 CE. Spot price: 25800
Setup
Buy lower strike OTM Call + Sell 2 ATM Calls + Buy higher strike OTM Call (equal wings)
When to Use
- Profit from minimal price movement
Market Outlook
Volatility Expectation↘Expected to Fall Sharply
Price DirectionSideways
Risk & Reward
Breakeven PointTwo breakeven points around middle strike
Max Contract LossNet Premium Paid
Max Position LossSame as Max Contract Loss
Strategy Details
Complexity LevelAdvanced
DirectionNeutral - Not much move
VolatilityFall
Number of Legs3 Leg
Strategy TypeDebit
Hedging CapabilityHeavily Hedged
Description
A butterfly spread involves buying two options at different strikes and selling two options at a middle strike
Example
If NIFTY is at ₹25,800, you might buy ₹25,600 Call, sell two ₹25,800 Calls, and buy ₹26,000 Call. Maximum profit occurs if NIFTY closes exactly at ₹25,800.
This information is for educational purposes only and should not be considered as financial advice. Always consult with a qualified financial advisor before making investment decisions. Data is constructed and is not actual. Calculations may have errors.
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