Presentation on theme: "Write Put Butterfly Spread MA180204 陳朝宏. Introduction The write put butterfly is a neutral strategy. It is a limited profit, limited risk options strategy."— Presentation transcript:
Introduction The write put butterfly is a neutral strategy. It is a limited profit, limited risk options strategy. There are three striking prices involved in a write put butterfly and it can be constructed by writing one lower striking put, buying two puts and writing another higher, giving the options trader a net credit to put on the trade.
Example Write Put Butterfly Construction Strike PricePremium Sell 1730038 Buy 2750085 Sell 17700171
Example Suppose an options trader executes a write put butterfly by writing a 7300 put for 38, buying two 7500 puts for 85 each and writing another 7700 put for 171. The net credit taken to enter the position is 39, which is also his maximum possible profit.
Example On expiration stock has dropped to 7300. All the options expire worthless and the write put butterfly trader gets to keep the entire initial credit taken of 39 as profit. This is also the maximum profit attainable and is also obtained even if the stock had instead rallied to 7700 or beyond.
Example On the downside, should the stock remains at 7500 at expiration, maximum loss will be incurred. At 7500, all except the higher striking put expires worthless. The higher striking put sold short would have a value of 200 and needs to be bought back to close the trade. Subtracting the initial credit of 39 taken, the net loss (maximum) is equal to 161.
Example Limited Profit ： MAX Profit ＝ 171 ＋ 38 － 85 － 85 ＝ 39 Limited Risk ： MAX Loss ＝ 200 － 39 ＝ 161 Breakeven Point(s) ： Upper Breakeven Point ＝ 7500 － 161 ＝ 7339 Lower Breakeven Point ＝ 7500 ＋ 161 ＝ 7661