The Long butterfly spread is a neutral strategy that is a combination of a bull spread and a bear spread. It is a limited profit, limited risk options strategy. There are 3 striking prices involved in a butterfly spread and it can be constructed using calls or puts.
Long Butterfly spread is constructed using Buy 1 ITM Call ,Sell 2 ATM Calls, Buy 1 OTM Call.the long butterfly can be constructed by buying one lower striking in-the-money call, writing two at-the-money calls and buying another higher striking out-of-the-money call. A resulting net debit is taken to enter the trade.
Long Call Butterfly Spread
Payoff Diagram for Long Butterfly Strategy
Procedure to Setup Long Butterfly Spread
1.Download Butterfly Spread.afl to Amibroker/Formulas/Options Spread directory
and Unzip the file. Create Options Spread Directory if it doesn’t exist.
2.Open Amibroker->File->Open New Blank Chart
3.Now on the Left Pane goto Charts->Option Spread and drag and drop Bear Iron Condor Spread to the blank chart.
4.Bingo! you got the Spread chart.
5.To Change the spread right click over the charts and goto Parameters where you have control to change the ITM call/put strike A, ATM call/Put Strike B, OTM Call/Put Strike C prices as shown below
1. Long Call Butterfly
2. Short Call Butterfly