%&*@ the butterfly spread

If i get asked breakeven prices on this, im just gonna draw a butterfly on the paper.

dude, its not bad at all. Step 1 - add up your net premiums. Step 2 - just figure out what stock price you’d need to offset the premiums. Would be easy points, IMO

i draw graphs on these. the breakeven is the space between the bottom and top calls and the middle ones minue the premium costs

It’s not bad really: 1. Calculate your net outflow/inflow (sell 2 calls in the middle, purchase high, purchase low). 2. Max profit will always be at the strike of the 2 middle calls you sold minus any net outflow. 2. Max loss can be calculated at a price just below the lowest call you purchased. The 2 calls purchased will be worthless and you will pocket premium from the 2 calls sold.

it is simple x1 + option cost or 2X2-x1 -option cost option cost= 2call x2- callx1-callx3

thread title was a good lol. if i was a grader i’d give you half credit for drawing the butterfly. as least use some blue and red pens to try to make it colorful. and then you can draw yourself getting trampled by a bull, eaten by a bear, and hanged with a collar! ok time to stop procrastinating and study…

are you joking shun? you cant do algebra shun???

And you might get partial credit. but seriously, it’s not that hard. you just need to get the net option premium and move away from the low strike by that amount to get the first break even price and move back by the same amount from the high strike for the second break even point. For example, consider this buy 100 call for 6 sell two 105 calls for 4 each buy 110 call for 3 net premium = 1 (loss) your 2 breakeven prices are 100 + 1 = 101 110 - 1 = 109

I know its not that bad, everybody has their “mental blocks”. For some reason whenever i look at this stuff my brain just shuts down.

markCFAIL, thanks for your GIPS post.

Any time. Thanks for posting every formula in the curriculum.

Here’s another way to look at it without memorizing the really dumb equations in the book for this strategy. (I looked at them once and said “I’ll figure this out myself”) a butterfly spread is the combo of a bull spread and a bear spread, so: Upper break even = break even of bull spread + cost of bear (short bull) spread Lower break even = Break even of bear (short Bull) spread - Cost of bull spread + (X2-X1) It’s that simple. You’ll get the same equations if you expand out the formulas and combine like terms, but I usually just figure out the independent equations and just add or subtract them together

some comic relief for us this late in the game - This thread helped me figure out b/e but I still struggle with max profit and loss. The graph isn’t very intuitive for me with the butterfly.

Any thoughts/ insight?

buy 100 (X1) call for 6 sell two 105 calls (X2) for 4 each buy 110 (X3) call for 3

net premium = 1 (loss)

the max profit of butterfly spread is the (X2-X1) minus the net option premium, which is 4.

the breakeven prices are: X1 + 1 = 101 X3 - 1 = 109

Each contract has 100 options