Butterflies, a Bet on Where It Lands

Intermediate · 13:35

A bet on where the stock lands, not which way it goes. This lesson shows why a butterfly is cheap, and why that is exactly the catch.

After this lesson you can

  • Work out a butterfly's cost, best case, worst case and both breakevens
  • See it as a bull spread and a bear spread joined at the middle strike
  • Understand why it's cheap: the odds of finishing near the peak are low
  • Choose the middle strike and the width from your forecast, and know why to close before the last week
  • Manage four legs without paying the spread four times

Chapters

  1. 0:00A bet on where it lands
  2. 1:23Three strikes, four options
  3. 2:35What it pays at expiration
  4. 3:56Two spreads in one
  5. 5:29Cheap, and why
  6. 6:44Waiting for the tent
  7. 8:06Width and location
  8. 9:33Managing a butterfly
  9. 10:58Five mistakes
  10. 12:09The whole lesson on one screen

In Chinese: Lesson 10 · 蝶式价差

All lessons in Options Trading for Beginners →