Long Call Butterfly

Long Call Butterfly is a strategy that must be devised when the investor is neutral on the market direction and expects volatility to be less in the market.

A Long Call Butterfly strategy is formed by selling two At-the-Money Call Options, buying one Out-of-the-Money Call Option and one In-the-Money Call Option.

A Long Call Butterfly is similar to a Short Straddle except that here the investor’s losses are limited.

The investor will benefit if the underlying Stock/ Index remains at the middle strike at expiration.

Investor view: Neutral on direction and bearish on Stock/ Index volatility.

Risk: Limited to the premium paid.

Reward: Limited.

Lower Breakeven: Strike price of Lower Strike Long Call + net premium paid.

Higher Breakeven: Strike Price of Higher Strike Long Call – net premium paid.

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