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Short Butterfly | PFG Futures

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Short Butterfly

Class: Precision

Synthetics: Short call A, Long 2 calls B, Short call C Short put A, long 2 puts B, Short put C. Short put A, Long put B, Long call B, Short call C. Short call A, Long call B, Long put B. Short put C. (Note: B – A must equal C – B)

Short Butterfly | PFG Futures

When to use:

When the market is either below A or above C and position

is overpriced with month or so left. Or when only a few

weeks are left, market is near B, and you expect an

imminent move in either direction.

Profit Characteristics:

Maximum profit is credit for which spread is put on. Occurs

when market, at expiration, is below A or above C, thus

making all options in-the-money or all options out-of-the

money

Loss Characteristics:

Maximum loss occurs if market is at B at expiration.

Amount of that loss is B – A – credit received when setting

up positions. Break -evens are a plus initial credit and

C less initial credit.

Decay Characteristics:

Decay negligible until final month, during which distinctive

pattern of butterfly forms. Maximum loss acceleration is at B.

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