Butterfly Call Spread
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Butterfly Spread Trades can be composed of all call options, all put options, or both call and put options.
Regardless of how they are constructed - for the most part they appear the same in a trading platform risk graph pay off diagram window - and also for the most part they perform the same while the trade is on.
There are instances where exiting the butterfly call spread trade can become somewhat of an issue when using an ‘all call option’ butterfly - or an ‘all put option’ butterfly.
This usually has to do with situations where the debit spread side of the trade becomes so far ‘in the money’ that it can be difficult to get a nice fill on those in the money option / spread when trying to exit the trade.
One way that this situation can be dealt with is to create a ‘box’ on the trade - which is buying and selling the exact opposite options that are so deep in the money. The exact opposite side of the trade will be out of the money and should be much easier to fill - and when done can ‘lock in’ the profit on that part of the trade.
photo credit: jontintinjordan
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