2281: Tanmiah

13 mag

The Bullish Butterfly is a complex options trading strategy that aims to profit from a moderate rise in the price of the underlying asset. It's constructed using four options contracts with the same expiration date but different strike prices.

Here's how it typically works:

1. **Buying**:
- Buy one call option with a lower strike price (closest to the current market price).
- Buy one call option with a higher strike price.

2. **Selling**:
- Sell two call options with a strike price between the two bought options.

The key is that the sold options finance the purchase of the two options. This strategy is called a "butterfly" because if you graph the strike prices and profit/loss, it resembles a butterfly with wings.

The maximum profit is achieved if the underlying asset closes at the middle strike price at expiration. Maximum loss occurs if the price moves significantly beyond the higher or lower strike prices. This strategy is for traders who anticipate a moderate increase in the underlying asset's price with limited risk.