🦋 Butterfly Spread Strategy

📌 What is a Butterfly Spread?

The Butterfly Spread is a neutral options strategy designed to have a high reward if the underlying asset stays near a specific price. It involves three strike prices using either all calls or all puts.

🛠️ Strategy Structure (Long Call Butterfly)

• Buy 1 Call at Lower Strike (Strike A)
• Sell 2 Calls at Middle Strike (Strike B)
• Buy 1 Call at Higher Strike (Strike C)
• All options must have the same expiry

📊 Example

Assume stock is trading at ₹100:

• Buy 1 Call at ₹90 for ₹12
• Sell 2 Calls at ₹100 for ₹7 each
• Buy 1 Call at ₹110 for ₹3

Net Premium Paid = ₹12 - ₹14 + ₹3 = ₹1

💰 Profit and Loss

• Maximum Profit: When stock closes at middle strike (₹100 in this case)
• Maximum Loss: Net premium paid (here ₹1)

📉 Breakeven Points

• Lower Breakeven = Lower Strike + Net Premium Paid
• Upper Breakeven = Higher Strike - Net Premium Paid

📌 Summary Table

Component	Details
Market View	Neutral
No. of Legs	3 (Buy 1, Sell 2, Buy 1)
Risk	Limited
Reward	Limited but high risk-reward ratio
Breakeven	Lower Strike + Premium, Higher Strike - Premium
Best Outcome	When spot expires at middle strike