Butterfly Option Strategies (Paper Trade)

• Long Butterfly Spread
  
  the butterfly spread is a neutral strategy that is a combination of a bull spread and a bear spread. It is a limited profit, limited risk options strategy. There are 3 striking prices involved in a butterfly spread and it can be constructed using calls or puts.
  
  Butterfly Spread Construction 
  
  Buy 1 ITM Call
  Sell 2 ATM Calls
  Buy 1 OTM Call 
  
• Long Call Butterfly
  Long butterfly spreads are entered when the investor thinks that the underlying stock will not rise or fall much by expiration. Using calls, the  long butterfly can be constructed by buying one lower striking in-the-money call, writing two at-the-money calls and buying another higher  striking out-of-the-money call. A resulting net debit is taken to enter the trade.
  
• Limited Profit
  Maximum profit for the long butterfly spread is attained when the underlying stock price remains unchanged at expiration. At this price, only the lower striking call expires in the money. 
  
  The formula for calculating maximum profit is given below:
  
  Max Profit = Strike Price of Short Call - Strike Price of Lower Strike Long Call - Net Premium Paid - Commissions Paid
  Max Profit Achieved When Price of Underlying = Strike Price of Short Calls
  
  
  Limited Risk
  Maximum loss for the long butterfly spread is limited to the initial debit taken to enter the trade plus commissions.
  
  The formula for calculating maximum loss is given below:
  
  Max Loss = Net Premium Paid + Commissions Paid
  Max Loss Occurs When Price of Underlying <= Strike Price of Lower Strike Long Call OR Price of Underlying >= Strike Price of Higher Strike  Long Call
  
  
• Breakeven Point(s)
  There are 2 break-even points for the butterfly spread. The breakeven points can be calculated using the following formulae.
  
  Upper Breakeven Point = Strike Price of Higher Strike Long Call - Net Premium Paid
  Lower Breakeven Point = Strike Price of Lower Strike Long Call + Net Premium Paid
  
• EXAMPLE
  

  
   

• Kotak BANK
  

Long 500 call at 25                 1 Lot

Write / Short 510 call at 18.55        2 Lot

Long 520 call at 13                1 Lot

 

Lot Size 1000

Return

Max Return in this Strategies around 1000 if Kotak Bank Expiry between 510 to 502 levels & or IF Expiry anywhere above 510 or below 500 than also we get Min Profit of Rs 700…

There is no Loss except Brokerage in these Strategies as per my calculation