Pro and Cons of Each Strategy (Strangles & Butterfly Options)

For writing a memo on these topics (Strangles & Butterfly options) it is very important to know about what is strangles and butterfly options and the butterfly spread is basically strategy which is also known as neutral strategy and it is the arrangement of bull and near spread. It has options strategy of limited risk and profit. Actually it is strategy o decision makers or investors by which is useful for the business have limited profit and limited risk. (KMIECIK, 2014)

Strangles and butterfly both are options strategies for investors which allows them to get from significant moves and the ups and down of the business and stock prices. The short strangle, otherwise called suggest strangle, and it is a neutral strategy for trading and exchanging that include the immediate offering of a somewhat out-of-the-money put and a slightly out-of-the-cash call and it have same expiry date. There are various complexities we will face when we will choose the strategy for our business. At the time of usage both strategy have its own advantages and limitations for making the concept of trading options and challenges. There are few aspects which show the usage of these strategies. (Trading, 2002)

Position of current market

Our appetite risk

Experience of trading

Potential profit

Trader’s intention and expectations

Break even point of business

First we will discuss the short strangles and it is the very good strategy to be deployed when the investors wants few thing and no volatility from market and the investor obligates for this strategy the strategy can become unlimited loss if the prediction of strategy cannot com. This strategy has neutral market position and its suits to expert level, the options of traded, call having four number of position needed action 1 short ITM and OTM call as well as 1 long ITM and OTM call. It has limited risk and unlimited potential profit. The investors have same breakeven point for both strategies. Investor expects for this strategy no market volatility and his intentions are stock prices must be remaining with two points. (G. A Agasandian, 2002)

The advantages of this strategy it have higher range of profit in stable market. The disadvantage of this strategy is unlimited risk with low premium and both strategies have same scenario of market for profit and loss. It is also known as credit spread market strategy. The graph line of this strategy becomes as

Source of this: www.theoptionstrading.com/compare

Now we will discuss long butterfly and it is neutral strategy to be organize when the investors has neutral outlook for the market and the investor obligates for this strategy the strategy bull and bear spread for high and low market share expectations. This strategy has neutral market position and its suits to intermediate level, the options of traded, call having four number of position needed action one ITM, one OTM  and two ATM call. It has limited risk and limited potential profit. The investors have same breakeven point for both strategies. Investor expects for this strategy no movement of the assets prices and his intentions is option can be expire at lower strike price. (Chaput, 2005)

The advantages of this strategy it have profit in low market volatility in limited risk value. The disadvantage of this strategy is limited profit and high premium and both strategies have same scenario of market for profit and loss. It is also known as NA strategy. The graph line of this strategy becomes as

Source of this: www.theoptionstrading.com/compare

References of Pro and Cons of Each Strategy (Strangles & Butterfly Options)

Chaput, J. S. (2005). Volatility trade design. Journal of Futures Markets: Futures, Options, and Other Derivative Products .

G. A Agasandian. (2002). Optimal behavior of an investor in option market. In Neural Networks, . IJCNN'02 .

KMIECIK, J. (2014). Use a Butterfly Spread to Catch NFLX Stock. EDT .

Trading, O. S. (2002). Option Spread and Combination Trading. Google scholar , 47.