Chapter 06 · Section 6.1

Short Butterfly Call Spread

Short 1 100 Call
Long 2 110 Calls
Short 1 120 Call

How would you construct this spread using puts?

a) Short 1 100 Put, Long 2 110 Puts, Short 1 120 Put.
Yes. Notice the way in which the two short puts offset the downside profit of the two long puts, creating the left "wing" of the spread. This effect is achieved on the right "wing" by the difference between the premiums paid and received. Continue
b) Long 1 100 Put, Short 2 110 Puts, Long 1 120 Put.
c) Short 1 100 Put, Long 2 110 Puts, Long 1 120 Put.