Long Call Butterfly

Psychology:

The long call butterfly is a strategy that involves selling two at-the-money call option contracts, buying a single in-the-money call option contract, and buying a single out-of –the-money call option contract. The long call butterfly strategy is best to use when the investor is neutral toward an underlying asset’s share price and bearish toward volatility. A long call butterfly is comparable to a short straddle. The difference between the two strategies is that with a long call butterfly there are limited losses.

Risk / Reward:

Maximum Loss: Limited to the at-the-money exercise price minus the in-the-money exercise price minus the total premium paid for the spread.

Maximum Gain: Limited to the total premium obtained from the spread.