Investment Type: Debit
Strike Prices: ITM for 1st bought leg, ATM/OTM for sold leg, OTM for 2nd bought leg.
Expiration Month: Same expiration months for all legs and should be current month
Composition: Buy higher strike Put + Sell middle strike Put + Buy lower strike Put

 
  Long Modified Call Butterfly Profile Chart  
 

 
Description:

 

Long Modified Call Butterfly is another variation of Long Call Butterfly. The distance between the middle and higher strike is closer than that of the lower and middle strike for Modified Call Butterfly. The strategy offers

This strategy is suitable for butterflies traders who want more flexibility. However, to achieve maximum rewards, stock price needs to be at the middle strike at expiration.

 
  Example  
 

 

Entry:


Maximum Initial Investment = $5,000 (or based on 5% money management rule)

Stock Price :

 $34.00

   
Buy/Sell :

Buy

    
Strike Price :

32.5 Call

 } Premium: $2.15
Expiration Date :

December
No of Contracts :

25

    

 

Stock Price :
$34.00
   
Buy/Sell :
Sell
    
Strike Price :
37.5 Call
 } Premium: $0.20
Expiration Date :
December
No of Contracts :
50
    

 

Stock Price :
$34.00
   
Buy/Sell :
Buy
    
Strike Price :
40 Call
 } Premium: $0.10
Expiration Date :
December
No of Contracts :
25
    

 

 

Investment @ Entry = (Premium of Lower Strike Leg x No of Contracts x 100 Shares) + (Premium of Middle Strike Leg x No of Contracts x 100 Shares) + (Premium of Higher Strike Leg x No of Contracts x 100 Shares) = $5,375 + ($1,000) + $250 = $4,625

 

Breakeven Point Down = lower strike + Net Debit = $32.50 + $1.85 = $34.35

 

Exit:

 

Best Case Scenario:

Stock Price :

 $37.50 up $3.50
   
Buy/Sell :
Buy
    
Strike Price :
32.5 Call
 } Premium: $5.00
Expiration Date :
December

 

Stock Price :

 $37.50 up $3.50
   
Buy/Sell :
Sell
    
Strike Price :
37.5 Call
 } Premium: $0.00
Expiration Date :
December

 

Stock Price :
 $37.50 up $3.50
    
Buy/Sell :
Buy
    
Strike Price :
40 Call
 } Premium: $0.00
Expiration Date :
December

 

Profit @ Exit = (Premium of Lower Strike Leg x No of Contracts x 100 Shares) + (Premium of Middle Strike Leg x No of Contracts x 100 Shares) + (Premium of Higher Strike Leg x No of Contracts x 100 Shares) – Investment @ Entry = $12,500 + $0 + $0 - $4,625 = $7,875

 

Return of Investment = Profit @ Exit / Investment @ Entry = 170%

 

Worst Case Scenario : Investment @ Entry

 

Stock Price
Profit/Loss
ROI

30.00

-4625

-100%

32.50

-4625

-100%

35.00

1625

35%

37.50

7875

170%

40.00

1625

35%

42.50

1625

35%