Long Call Butterfly - Buy One lower strike call, sell two middle strike calls and buy one higher strike call
Strategies...
- Buy ONE lower Strike Call (ITM)
- Sell TWO middle strike Calls (ATM) with same expiration.
- Buy ONE higher Strike Call (OTM) with same expiration.
- Seeking for little movement in the stock
- Maximum profit if the the stock at middle strike price.
- Preferably options with one month or less to expiration.
McDonald's Corporation (NYSE:MCD), is traded at $85 on June, 2012. To do a long call butterfly.
- Buy July 2012 $80 Call at $7.30.
- Sell July 2012 $85 Call at $3.40.
- Buy July 2012 $90 Call at $1.05.
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| Long Call Butterfly |
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| Long Call Butterfly |
- Profit from little movement in the stock.
- Low cost.
- Narrow range for high profit.
Premium Paid: $7.30 - ($3.40 x 2) + $1.05 = $1.55
Maximum Profit: $5.00 - $1.55 = $3.45
(Different in strike - net premium paid)
Maximum Loss: Net Premium paid
Breakeven Up: $90.00 - $1.55 = $88.45
(Higher Strike Price - Premium paid)
Breakeven Down : $80.00 + $1.55 = $81.55
(Lower Strike Price + Premium paid)
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