Long Butterfly
Neutral StrategyUse Zuviz's free options visualizer to build this strategy instantly. Buy 1 lower, sell 2 middle, buy 1 higher. Low cost strategy that profits when stock pins at the center strike.
⚡ Key Takeaways
- Market Outlook: Neutral (stock stays near middle strike)
- Max Profit: Difference between strikes - net debit
- Max Loss: Net debit paid
- Breakeven: Lower/upper wing ± net debit
- Best for: Low-cost neutral play, defined risk
- Greeks Impact: Negative Theta initially, then positive near expiration
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📊 Payoff Diagram
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🏗️ Strategy Structure
| Leg | Action | Type | Strike | Qty | Premium |
|---|---|---|---|---|---|
| 1 | Buy | Call | $95 | 1 | $6.00 |
| 2 | Sell | Call | $100 | 2 | $3.50 each |
| 3 | Buy | Call | $105 | 1 | $1.50 |
Net Debit: ($6.00 + $1.50) - (2 × $3.50) = $0.50/share ($50/contract)
Max Profit: $5.00 (width) - $0.50 = $4.50/share ($450/contract)
🧮 Key Calculations
🎯 When to Use This Strategy
- Pin play: Expecting stock to pin at center strike at expiration
- Low cost: Risk small amount for potential high reward
- Near expiration: Works best with short DTE (Gamma increases)
- Earnings pin: When stock historically pins after earnings
📈 Greeks Impact
Delta (Δ)
Near Zero - You want the stock to stay still.
Theta (Θ)
Positive - Time decay is your best friend here.
Vega (ν)
Negative - You want volatility to decrease (IV Crush).
⚖️ Pros & Cons
Pros
- Very high reward-to-risk ratio
- Low cost to enter
- Defined risk
Cons
- Narrow profit target
- Max profit rarely achieved
- Commission heavy (3 legs)
📝 Real-World Example
Stock: AMD at $100. Trade: Buy $90 Call, Sell 2x $100 Call, Buy $110 Call.
Cost: $1.00. Max Profit: $900. Max Loss: $100. Target: $100 at exp.