Long Call Butterfly can consist of either a call option contract or a put option contract.

The two different contract types make up two combinations of buying butterfly  s: the long call butterfly and the long put butterfly.

Take the  long call butterfly as an example. If you think the stock price won't change much in the future, and if you want to profit from trading options while the risk is manageable, you can use the  long call butterfly.

How to build

The long call butterfly consists of three options trades

● Buy 1 call 1

● Sell 2 copies of Call2

● Buy 1 copy of Call3

The underlying assets and expiration dates of Call1, Call2, and Call3 are all the same. The differences are:

Exercise price: call1>call2>call3, and call1-call2=call2-call3;

Number of open positions: call1: call2: call3 = 1:2:1

Strategy introduction

Buying a  the long call butterfly. Normally, opening a position is to buy 1 imaginary option call 1 with a higher exercise price, sell 2 flat value options call 2 with an intermediate exercise price, and then buy a real option call 3 with a lower execution price. The three execution price differences are equally spaced, and the expiration date is the same.

If you take this combination apart, it's actually a combination of a  the long call butterfly and a bear market : buying call1 and selling 1 call2 is a bearish bullish option ; selling 1 copy of call2 and buying call3 is a bullish bullish option .

Like a combination of bull and bear s, buying a  the long call butterfly is also a strategy with limited risks and benefits.

When the stock price is higher than the highest exercise price or lower than the minimum exercise price, the strategy makes the biggest loss; when the stock price is equal to the median exercise price, the strategy gains the most profit.

When analyzing this combination of strategies, we are still starting from the construction motivations.

Selling 2 call options in the middle is the main part of this strategy to achieve profits under the expectation that “there will be no major change in stock prices.”

Buying a call option on both sides is used to hedge the risk of selling a call option, while also setting a more accurate profit range for the stock price.

Overall, this strategy is suitable for investors who have a high degree of confidence in the upper and lower limits of stock price fluctuations, and at the same time are risk-averse.

Finally, since the butterfly  strategy for buying bullish options is a four-legged strategy, the transaction cost of this strategy is high, and investors should pay special attention to costs when using it.

Risks and benefits

● Break-even point

Low break-even point: stock price = low exercise price - net option premium

High break-even point: stock price = high exercise price+net option premium

● Maximum profit

Maximum return = higher equity price - BOC price+net option premium

● Maximum loss

Net option premium

Examples of calculations

Assuming that in the US stock market, TUTU's current stock price is 52 US dollars. You think TUTU's stock price will still be around 52 US dollars in the next month, so you can use the butterfly strategy of buying bullish options.

Buy 1 call with an exercise price of 56 US dollars at a price of 2 US dollars;

Sell 2 calls with an exercise price of $52 at a price of $3;

Buy 1 call with an exercise price of $48 at a price of $6;

At maturity, your earnings will be as follows:

Explanation:

1. The article uses stocks as option targets to explain strategies. The actual investment bid can also be stock indices, futures contracts, bonds, currencies, etc.;

2. Unless otherwise specified, all options in this article refer to on-market options;

3. The TUTU company in the article is a virtual company;

4. The relevant calculations in this article do not take into account handling fees. In actual options investment, investors need to consider transaction costs.