Investment Type: Debit
Strike Prices: ITM/ATM/OTM for both legs
Expiration Month: No Restrictions
Composition: Buy Call (less contracts) + Buy Put (more contracts)
| Long Modified Put Butterfly Profile Chart | ||
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Long Modified Put Butterfly is another variation of Long Put Butterfly. The distance between the middle and lower strike is closer than that of the higher and middle strike for Modified Put Butterfly.
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.
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Entry:
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) = $5,100 + ($1,200) + $150 = $4,050
Breakeven Point Up = higher strike - Net Debit = $35.00 - $1.35 = $33.65
Exit:
Best Case Scenario:
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 = $15,000 + $0 + $0 - $4,050 = $10,950
Return of Investment = Profit @ Exit / Investment @ Entry = 270%
Worst Case Scenario : Investment @ Entry
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