The strategy of a Butterfly is used in a poorly volatile market. The underlying fact in the absence of volatility allows you to get the maximum pay-off ( the profit of the strategy ) , which is reached when the strike price.
The butterfly produces a limited loss equal to the cost of the strategy (in fact the person who puts into practice the Butterfly pay for the purchase of two call options and receives an award for the sale of two call options, the difference determines the cost of the operation).
A butterfly (short) has the same characteristics of a butterfly (long), but it is built with a composition of call or put options symmetrical to long. If we build a butterfly short call options with it.
Although the graph is symmetrical to that seen for the butterfly long and one can easily deduce that this strategy aims to gain ( positive payoff ) by an increase in volatility, however, the gain is limited in the case of large movement in the Crypto Margin Trading market.
The call or the call option is a contract that allows the holder to purchase a financial instrument concerned, then called underlying at a price fixed in advance (exercise price, also called strike) and a specific date called maturity date of the call.
There is a European call if the purchaser can exercise his right only to the date of maturity and an American call if he can exercise at any time before the maturity date. The Bermuda call may be exercised at several pre-defined periods between the issue date and the maturity date of the option.
The primary purpose of these options is to protect against the rising price of the underlying. For example, an airline buys a call whose underlying is kerosene which protects against a rise above the exercise price and thus to ensure maximum supply price. The call therefore acts as insurance. This purchase in Crypto Margin Trading is known to provide real security.
The purchase of call options also allows the buyer to speculate on rising underlying, limiting risk, since only the premium is engaged. In contrast, the speculator who wants to sell a call option believes that the price of the underlying will not rise above the exercise price at the horizon of the due date.
Finally, the purchase or sale of an option, call or put, is a way to speculate on the volatility of the underlying: the buyer believes that it will go up, and , conversely, the seller anticipates a decline.
Leave a Reply