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Long Call Butterfly Vs Short Call Butterfly Options Trading Strategy Comparison

Compare Long Call Butterfly and Short Call Butterfly options trading strategies. Find similarities and differences between Long Call Butterfly and Short Call Butterfly strategies. Find the best options trading strategy for your trading needs.

Long Call Butterfly Vs Short Call Butterfly

  Long Call Butterfly Short Call Butterfly
Long Call Butterfly Logo Short Call Butterfly Logo
About Strategy Long Call Butterfly is a neutral strategy where very low volatility in the price of underlying is expected. The strategy is a combination of bull Spread and bear Spread. It involves Buy 1 ITM Call, Sell 2 ATM Calls and Buy 1 OTM Call. The strike prices of all Options should be at equal distance from the current price. Suppose Nifty is currently trading at 10400. You expect very little volatility in it. You can implement the Long Call Butterfly by buying 1 ITM Call Option at 10300, selling 2 ATM Nifty Call Options at 10400, buying 1 OTM Call Option at 10500. Ensure that strike prices of Options are at equidistance. Your loss will be limited to the net premium paid on 4 positions while profit will be limited to strike price of short calls.... Read More Short Call Butterfly (or Short Butterfly) is a neutral strategy similar to Long Butterfly but bullish on the volatility. This strategy is a limited risk and limited profit strategy. This strategy consists of two long calls at a middle strike (or ATM) and one short call each at a lower and upper strike. All the options must have the same expiration date. Also, the upper and lower strikes (or wings) must both be equidistant from the middle strike (or body). In simple terms, it involves Sell 1 ITM Call, Buy 2 ATM Calls and Sell 1 OTM Call. The strike prices of all Options should be at equal distance from the current price as shown in the example below. The usual Short Butterfly strategy looks like as below for NIFTY current index value as 1... Read More
Market View Neutral Neutral
Strategy Level Advance Advance
Options Type Call Call
Number of Positions 4 4
Risk Profile Limited Limited
Reward Profile Limited Limited
Breakeven Point 2 Break-even Points

When and how to use Long Call Butterfly and Short Call Butterfly?

  Long Call Butterfly Short Call Butterfly
When to use?

This strategy should be used when you're expecting no volatility in the price of the underlying.

This strategy is meant for special scenarios where you foresee a lot of volatility in the market due to election results, budget, policy change, annual result announcements etc.

Market View Neutral

Neutral on the underlying asset and bearish on the volatility.

Neutral

When you are unsure about the direction in the movement in the price of the underlying but are expecting high volatility in it in the near future.

Action
  • Sell 2 ATM Call
  • Buy 1 ITM Call
  • Buy 1 OTM Call

  • Buy 2 ATM Call
  • Sell 1 ITM Call
  • Sell 1 OTM Call

Breakeven Point

Upper Breakeven = Higher Strike Price - Net Premium

Lower Breakeven = Lower Strike Price + Net Premium

2 Break-even Points

There are 2 break even points in this strategy.

  1. Lower Break-even = Lower Strike Price + Net Premium
  2. Upper Break-even = Higher Strike Price - Net Premium

Compare Risks and Rewards (Long Call Butterfly Vs Short Call Butterfly)

  Long Call Butterfly Short Call Butterfly
Risks Limited

Risk in the Long Call Butterfly options strategy is limited to the net premium paid.

Limited

The maximum risk is limited.

Maximum Risk = Higher strike price- Lower Strike Price - Net Premium

Rewards Limited

Rewards in the Long Call Butterfly options strategy is limited to the adjacent strikes minus net premium debit.

Limited

The profit is limited to the net premium received. This happens when the price of the underlying is trading beyond the range of strike prices at expiration date.

Maximum Profit Scenario

Only ITM Call exercised

All Options exercised or not exercised

Maximum Loss Scenario

All options exercised or all options not exercised.

Only ITM Call exercised

Pros & Cons or Long Call Butterfly and Short Call Butterfly

  Long Call Butterfly Short Call Butterfly
Advantages

Profit earning strategy with limited risk in a less volatile market.

This strategy requires no investment as net premium is positive and received. It allows you to benefit from high volatile market scenarios without the need to speculate on the direction of price movement.

Disadvantage

Premiums and brokerage paid on multiple position may eat your profits.

Profitability depends on significant movement in the price of the underlying.

Simillar Strategies Long Straddle, Long Call Butterfly
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Long Call Butterfly Vs Short Straddle
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Long Call Butterfly Vs Long Condor
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Long Call Butterfly Vs Box Spread
Long Call Butterfly Vs Short Box
Long Call Butterfly Vs Covered Strangle
Short Call Butterfly Vs Long Call
Short Call Butterfly Vs Short Call
Short Call Butterfly Vs Long Put
Short Call Butterfly Vs Short Put
Short Call Butterfly Vs Bull Call Spread
Short Call Butterfly Vs Bull Put Spread
Short Call Butterfly Vs Synthetic Call
Short Call Butterfly Vs Covered Call
Short Call Butterfly Vs Long Combo
Short Call Butterfly Vs Collar
Short Call Butterfly Vs Bear Call Spread
Short Call Butterfly Vs Bear Put Spread
Short Call Butterfly Vs Protective Call
Short Call Butterfly Vs Covered Put
Short Call Butterfly Vs Long Straddle
Short Call Butterfly Vs Short Straddle
Short Call Butterfly Vs Long Strangle
Short Call Butterfly Vs Short Strangle
Short Call Butterfly Vs Long Condor
Short Call Butterfly Vs Short Condor
Short Call Butterfly Vs Box Spread
Short Call Butterfly Vs Short Box
Short Call Butterfly Vs Covered Strangle