Long a Butterflu Call & Long a Butterfly Put

CFA Level III
#1

Are the applications of both “Long a Butterfly Call” & “Long a Butterfly Put” same (in stable market with low volatility) ?

#2

payoff for them is the basically same (only slight difference because of premiums)

#3

I think “short a straddle” can be used in stable market with low volatility too.

#4

yes alta , you’re right but in the case of the long straddles you pay a net premium , while for short straddle you are zero on the premium

#5

janakisri Wrote: ------------------------------------------------------- > yes alta , you’re right but in the case of the > long straddles you pay a net premium , while for > short straddle you are zero on the premium will receive premium in case of “short straddle”, right ? why “zero” ? Please advise. Thanks in advance.

#6

Short straddle indeed collects premium on BOTH call and put. The writer believes the price wouldnt move at all

#7

The option payoff for a short straddle is the complete opposite of a long straddle. Picture a pyramid.

#8

hadnt thought of that as a pyramid before, thanks for the useful image.