Debit spread A debit spread is an option spread strategy in which the premiums paid for the long leg s of the spread is more than the premiums received from the short leg s. Notice that they are the exact same distance from the middle options you sold. All the various choices for your butterfly options trading strategy can get confusing. Could you pls explain your question with more details? Otherwise, the same environment of low expected volatility would be the best for establishing a Long Iron Butterfly strategy. The butterfly spread belongs to a family of spreads called wingspreads whose members are named after a myriad of flying creatures. Aside from purchasing a naked call option, you can also engage in a basic covered call or buy-write strategy.
Note: While we have covered the use of this strategy with reference to stock options, the butterfly spread is equally applicable using ETF options, Long Put Butterfly. The long butterfly trading strategy can also be created using puts instead of calls and is known as a long put butterfly.
What is a Butterfly Option Trading Strategy
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Understanding Vertical Spreads In Options Trading
A butterfly spread is a neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration but three different strike prices. A long Butterfly Option Trading Strategy is a limited risk, non-directional options strategy that is designed to earn big (but limited) profits but with a low probability. The long Butterfly spread also wins when the future volatility of the underlying is expected to be lower from the current implied volatility. The covered call is a strategy in options trading whereby call options are written against a holding of the stock. Credit Spread Option A credit spread is an option spread strategy in which the premiums received from the short leg(s) of the spread is greater than the premiums paid for the long leg(s).