Skip to content

Long Call Butterfly

A Long Call Butterfly involves buying one call option at a lower strike, selling two call options at a middle strike, and buying one call option at a higher strike. It profits when the price stays near the middle strike at expiry.

  • Ideal for low-volatility conditions, where price is expected to remain range-bound.
  • Strike prices are chosen equidistant (e.g., lower, middle, and higher strike prices at equal intervals).
  • Risk is limited to the net premium paid, and profit is capped at the difference between the adjacent strikes minus the premium paid.
  • Provides high reward for minimal price movement within the range.

Example:

  • NIFTY trading at 18,000.
  • Buy 17,900 Call at ₹200, sell 2 × 18,000 Calls at ₹150 each, and buy 18,100 Call at ₹100 (lot size = 50).
  • Outcome:
    1. If NIFTY stays at 18,000 at expiry:
      • Both bought calls expire OTM.
      • Middle strike calls expire worthless.
      • Net profit = ₹10,000 (maximum profit).
    2. If NIFTY rises to 18,100 at expiry:
      • Loss from the middle strike calls = ₹5,000.
      • Gain from the higher and lower strikes = ₹5,000.
      • Net profit = ₹0.
    3. If NIFTY falls below 17,900 at expiry:
      • All options expire worthless.
      • Net loss = ₹5,000 (premium paid).
Back To Top
error: Content is protected !!