In the options stretegies question, it is stated that…
“Meriah would choose a butterfly spread if he had a mild belief that the price would not change much and wanted to protect against a large increase or large decrease”
and "Meriah wold choose a bull spread if he believed that the share price but wanted to protect against an unexpected decrease"
Don’t both of these spreads not protect against price decreases (assuming long)? Like how would going long a butterfly protect against a decrease in price? you would just lose if the price dropped to the lower strike. Same with a bull spread using calls. You wouldn’t gain on the upside or the downside outside the strikes- right?
Need help
Contrast the payoff on a bull spread ( _/¯ ) to the payoff on a synthetic long ( / ); the bull spread has protection against the underlying price dropping below the lower strike price, while the synthetic long does not.
Contrast the payoff on a butterfly spread ( _/_ ) to the payoff on a short (reverse) straddle ( /\ ); the butterfly spread has protection against the underlying price dropping below the lowest strike price or rising above the highest strike price, while the short straddle does not.
ok, i get what you mean. I think that “protect” and “not have exposure to” are different things though, right? like if you long a butterfly but you dont own the underlying, you dint lose on the way down (same with bull), however “protect from downside moves” sort of makes it confusing. But i understand what you mean now. Thank you!