1. Short Butterfly 班級：碩研財金一甲 指導教授：張上財 學號： MA180101 姓名：劉芷綾

2. Purpose What is the butterfly option spread ？ The butterfly spread is put together to create a low risk, low reward options strategy and is designed to take advantage of a market or stock that is range bound. The butterfly can be created using call options or put options.

3. Purpose What is the butterfly option spread ？ The strategy is termed "butterfly" due to the shape of the risk characteristics graph you see below; notice the two wings and then the larger body. The butterfly spread is constructed through buying 1 long ITM call, shorting 2 ATM calls, and buying 1 long OTM call. The ratio between the 3 options should be 1:2:1 and the distance between the strike prices of the long options should be equidistant from the short call strike.

4. Purpose Short Butterfly The short butterfly is a neutral strategy like the long butterfly but bullish on volatility. It is a limited profit, limited risk options trading strategy. There are 3 striking prices involved in a short butterfly spread and it can be constructed using calls or puts.

5. Purpose Short Call Butterfly Using calls, the short butterfly can be constructed by writing one lower striking in-the-money call, buying two at-the- money calls and writing another higher striking out-of-the- money call, giving the trader a net credit to enter the position.

6. Purpose The timing of buying short butterfly -Investors expect that the variation in prices is great. -Investors expect that the index will be upward or downward and the profit/risk is limited. -Investors will have the benefit of the time value. The short spread and the bull spread of the strike price are the same spacing.

7. Purpose Risk and profit -Its profit and risk are limited. -It is a conservative operating strategy. -Investors do not want to take too much risk. -The short butterfly is a good choice.

8. Purpose Transaction Mode -To sell a unit high strike price at the same time with a low strike price call. -To buy two units of the call at the same price is simultaneous. -It can be compose by all call or put.

9. Purpose Limited Profit Maximum profit for the short butterfly is obtained when the underlying stock price rally pass the higher strike price or drops below the lower strike price at expiration. If the stock ends up at the lower striking price, all the options expire worthless and the short butterfly trader keeps the initial credit taken when entering the position. However, if the stock price at expiry is equal to the higher strike price, the higher striking call expires worthless while the "profits" of the two long calls owned is canceled out by the "loss" incurred from shorting the lower striking call. Hence, the maximum profit is still only the initial credit taken.

10. Purpose Max profit ─When the spot price closed below the lowest strike price or above the highest strike price at maturity. – Max Profit = Net Premium Received - Commissions Paid – Max Profit Achieved When Price of Underlying = Strike Price of Higher Strike Short Call

11. Purpose Limited Risk -Maximum loss for the short butterfly is incurred when the stock price of the underlying stock remains unchange at expiration. - At this price, only the lower striking call which was shorted expires in-the-money. The trader will have to buy back the call at its intrinsic value.

12. Purpose Max loss – When the spot price close above the middle strike price at maturity. – Max Loss = Strike Price of Long Call - Strike Price of Lower Strike Short Call - Net Premium Received + Commissions Paid – Max Loss Occurs When Price of Underlying = Strike Price of Long Calls

13. Purpose Breakeven Point – Upper Breakeven Point = Strike Price of Highest Strike Short Call - Net Premium Received – Lower Breakeven Point = Strike Price of Lowest Strike Short Call + Net Premium Received

14. Content A. Max risk B. Max profit C. higher strike price D. lower strike price E. sold strike price F. Upper Breakeven Point G. Lower Breakeven Point H.premium H

15. Content-White Butterfly Construction Call Strike priceTransaction priceQuantity Buy7300942 Sell70002381 Sell 7600291

16. Content 7300 (-94) 7000 (+238) Call Buy 7300 -94 7394 Call Sell 7000 +238 7238 Call Buy 7300 -94 Sell 7000 +238 7000 (+144) 7300 (-156) 7144 238-94=144 238-300=-62 -94 -156

17. Content 7300 (-94) 7600 (+29) Call Buy 7300 -94 7394 Call Sell 7600 +29 7629 Call Buy 7300 -94 Sell 7600 +29 7600(+235) 7300 (-65) 7365 -94+29=-65 300-65=235

18. Content 7000 (+79)7600 (+79) 75217079 7300 (-221) 94x2=188 188-238-29=-79 or +144-65=-79 300-79=221 or -156-65=-221 79 221 0 + $ - $ stock price at expiration Call Strike price Transaction price Buy730094 Sell7000238 Sell760029

19. Conclusion Write Butterfly Max profit79 Max loss221 Upper Breakeven Point7521 Lower Breakeven Point7079

20. Thank you for your attention !