Long call Butterfly Spread options trading strategy - Stock market analysis #shorts #krinu

Long call butterfly spread is a neutral strategy implemented when the investor thinks the upward or downward movement in Nifty may be limited or in other words less volatile for a particular period of time

here in this Long call butterfly spread the investor constructs the strategy by Buying 1 ITM call (Leg-1) , sell 2 ATM Call's (Leg-2) & Buys 1 OTM call (Leg-3) with the same expiry for the asset Nifty , the spread should be equal for both the sides ; example here the investor has fixed 50 points range upward and downward respectively to make it a prefect butterfly wing spread

hence he buys 2 calls and sells 2 calls he ends up paying a net premium ( premium he receives from selling 2 calls (minus) the premium he paid for buying 2 calls ) which results in a net debit but considerably low premium since the premium received partially funds the premium he needs to pay

if nifty trades above the break-even of leg-2 and crosses leg-3 break-even the investor makes a profit from Leg-3 & Leg-1 (2 call options bought) at expiry

if Nifty trades below the break-even of Leg-2 and crosses Leg-1 break-even the investor makes profit from Leg-2 (2 call options he sold) at expiry

hence Long call butterfly spread is effective when the outlook for the asset (nifty) is neutral or no considerable upside or downside movement is expected
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