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Comparision (CALL BACKSPREAD VS IRON BUTTERFLY)

 

Compare Strategies

  CALL BACKSPREAD IRON BUTTERFLY
About Strategy

Call Backspread Option Trading 

This strategy is adopted by traders who are bullish in nature. He expects market and volatility to rise in the near future. A trader need not be direction specific here (i.e. an upward or downward trend, but a small bias towards an uptrend should always be present, as the gains will be much higher once the market moves up r

Iron Butterfly Option Strategy 

This strategy is implemented when a trader is bearish on the volatility of market and neutral on the market movements. A trader will buy 1 OTM Put Option, sell 1 ATM Put Option, sell 1 ATM Call Option, buy 1 OTM Call Option. Due to offsetting of long and short positions, this strategy bags limited profit with limited risk.

CALL BACKSPREAD Vs IRON BUTTERFLY - Details

CALL BACKSPREAD IRON BUTTERFLY
Market View Bullish Neutral
Type (CE/PE) CE (Call Option) CE (Call Option) + PE (Put Option)
Number Of Positions 3 4
Strategy Level Advance Advance
Reward Profile Unlimited Limited
Risk Profile Limited Limited
Breakeven Point Lower breakeven = strike price of the short call, Upper breakeven = strike price of long calls + point of maximum loss Upper Breakeven Point = Strike Price of Short Call + Net Premium Received, Lower Breakeven Point = Strike Price of Short Put - Net Premium Received

CALL BACKSPREAD Vs IRON BUTTERFLY - When & How to use ?

CALL BACKSPREAD IRON BUTTERFLY
Market View Bullish Neutral
When to use? This strategy is used when the investor expects the price of the stock to rise in the future. This strategy is implemented when a trader is bearish on the volatility of market and neutral on the market movements.
Action Sell 1 ITM Call, BUY 2 OTM Call Buy 1 OTM Put, Sell 1 ATM Put, Sell 1 ATM Call, Buy 1 OTM Call
Breakeven Point Lower breakeven = strike price of the short call, Upper breakeven = strike price of long calls + point of maximum loss Upper Breakeven Point = Strike Price of Short Call + Net Premium Received, Lower Breakeven Point = Strike Price of Short Put - Net Premium Received

CALL BACKSPREAD Vs IRON BUTTERFLY - Risk & Reward

CALL BACKSPREAD IRON BUTTERFLY
Maximum Profit Scenario Unlimited profit potential if the stock goes in upward direction. Net Premium Received - Commissions Paid
Maximum Loss Scenario Strike Price of long call - Strike Price of short call - Net premium received Strike Price of Long Call - Strike Price of Short Call - Net Premium Received + Commissions Paid
Risk Limited Limited
Reward Unlimited Limited

CALL BACKSPREAD Vs IRON BUTTERFLY - Strategy Pros & Cons

CALL BACKSPREAD IRON BUTTERFLY
Similar Strategies - Long Put Butterfly, Neutral Calendar Spread
Disadvantage • Large commissions involved. • Probability of losses are higher.
Advantages • Unlimited profit potential. • Less amount of capital investment, steady income with low risk. • Traders can predict maximum loss and profit. • Versatile strategy, investors can transform position into bear call spread or bull put spread easily.

CALL BACKSPREAD

IRON BUTTERFLY