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A long iron butterfly will attain maximum losses when the stock price falls at or below the lower strike price of the put or rises above or equal to the higher strike of the call purchased. The difference in strike price between the calls or puts subtracted by the premium received when entering the trade is the maximum loss accepted.
And, suppose for the bear call portion of the iron butterfly a call option with a strike price of $100 for GHI stock is sold at $3.00 and a call option for UVW with a strike price of $110 is purchased for $1.00, and at the option's expiration the price of the stock or index is the same as when entered. The return generated for this position is:
Long 1 put with a strike price of (X + a) Short 2 puts with a strike price of X; Long 1 put with a strike price of (X − a) where X = the spot price and a > 0. All the options have the same expiration date. At expiration the value (but not the profit) of the butterfly will be: zero if the price of the underlying is below (X − a) or above (X + a)
Long butterfly spreads use four option contracts with the same expiration but three different strike prices to create a range of prices the strategy can profit from. [1] [2] Straddle - an options strategy in which the investor holds a position in both a call and put with the same strike price and expiration date, paying both premiums (long ...
Strike price labeled on the graph of a call option.To the right, the option is in-the-money, and to the left, it is out-of-the-money. In finance, the strike price (or exercise price) of an option is a fixed price at which the owner of the option can buy (in the case of a call), or sell (in the case of a put), the underlying security or commodity.
As above, the PDE is expressed in a discretized form, using finite differences, and the evolution in the option price is then modelled using a lattice with corresponding dimensions: time runs from 0 to maturity; and price runs from 0 to a "high" value, such that the option is deeply in or out of the money. The option is then valued as follows: [5]
We can obtain a third view of the long box-spread by reading the table diagonally. A long box-spread can be viewed as a long strangle at one pair of strike prices, and , plus a short strangle at the same pair of strike prices. The long strangle contains the two long (buy) options.
If the put has a higher strike price instead, the position is sometimes called a guts. [1] If the options are purchased, the position is known as a long strangle, while if the options are sold, it is known as a short strangle. A strangle is similar to a straddle position; the difference is that in a straddle, the two options have the same ...
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