Long Put Butterfly ((Sell 2 ATM Put, Buy 1 ITM Put, Buy 1 OTM Put) A Long Put Butterfly is to be adopted when the investor is expecting very little movement in the stock price / index. The investor is looking to gain from low volatility at a low cost. The strategy offers a good risk / reward ratio, together with low cost. The strategy can be done by selling 2 ATM Puts, buying 1 ITM Put, and buying 1 OTM Put Options. Market Scenario:When the investor is neutral on market direction and bearish on volatility. Risk:Net premium paid Reward:Limited (Difference between adjacent strikes - net debit) BEP:Upper BEP = Strike Price of Highest Strike Long Put - Net Premium Received Lower BEP = Strike Price of Lowest Strike Long Put + Net Premium Received Example... Visit finideas for more details
Posted on: Sat, 29 Nov 2014 08:22:24 +0000
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