Kill the time in Options, trade direction with OTM Butterfly: Shubham Agarwal

Now, when the market tones down the momentum, this time value becomes a killer. The loss led by time value decay in many cases may overshadow the profit from the direction. So, in such cases, where the time can Kill the Trade, we will proactively resort to OTM Butterfly and Kill the Time in Trade with OTM Butterfly.

Let us understand what Butterfly strategy is first. A Butterfly strategy is where we sell 2 Calls or 2 Puts depending upon the upward or downward move expectation and Buy a Lower strike Call/Put and a higher strike Call/Put at equal distance. The Maximum profit would be with expiry at the center strike. Maximum profit would be the difference between Buy & Sell strikes minus the premium paid at the time of initiation. 
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