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The long butterfly spread (buying a butterfly) consists of purchasing a call (put) spread, while simultaneously selling a call (put) spread with the same short strike price. All options are in the same expiration cycle, and both spreads should have the same strike width for standard long butterfly spreads.
Long butterfly spreads profit from time decay or decreases in implied volatility when the stock price is near the short strike.
In this video, you’ll learn:
1. How to construct call butterfly spreads
2. How to construct put butterfly spreads
3. What the expiration risk profile graph looks like for long butterfly spreads, as well as in-depth explanations as to why profits or losses occur at various stock prices.
4. How do long butterfly spreads perform when the stock price changes?
Additionally, you’ll see performance visualizations for three real long call butterfly trades so that you can understand how the strategy performs in different scenarios.
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