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One very useful way to analyze and understand the behavior of a certain option strategy is by drawing its Profit graph. An option strategy profit / loss graph shows the dependence of the profit / loss on an option strategy at different base asset price levels and at different moments in time. [7]
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) positive if the price of the underlying is between (X - a) and (X + a) The maximum value occurs at X (see diagram).
The trader will then receive the net credit of entering the trade when the options all expire worthless. [2] A short iron butterfly option strategy consists of the following options: Long one out-of-the-money put: strike price of X − a; Short one at-the-money put: strike price of X; Short one at-the-money call: strike price of X
The options trader makes a profit of $200, or the $400 option value (100 shares * 1 contract * $4 value at expiration) minus the $200 premium paid for the call.
The options trader employing this strategy hopes that the price of the underlying security goes up far enough that the written put options expire worthless. If the bull put spread is done so that both the sold and bought put expire on the same day, it is a vertical credit put spread. Break even point = upper strike price - net premium received
Profit diagram of a box spread. It is a combination of positions with a riskless payoff. In options trading, a box spread is a combination of positions that has a certain (i.e., riskless) payoff, considered to be simply "delta neutral interest rate position".
The iron condor is an options trading strategy utilizing two vertical spreads – a put spread and a call spread with the same expiration and four different strikes. A long iron condor is essentially selling both sides of the underlying instrument by simultaneously shorting the same number of calls and puts, then covering each position with the purchase of further out of the money call(s) and ...
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