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.
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.
Think of how the options will balance one another out. In order to get the wings of the spread, you will need to have unlimited profit balanced with unlimited loss on one side of the market...
...and net premiums received outweighing net premiums paid on the other side.