This is one of the basic strategies as it involves entering into one position i.e. buying the Call Option only. Any investor who buys the Call Option will be bullish in nature and would be expecting the market to give decent returns in the near future.
Reverse Iron Butterfly as the name suggests is the opposite of Iron Butterfly. In Reverse Iron Butterfly, a trader is bullish on volatility and expects the market to make significant move in the near future in either directions. Here a trader will buy 1 ATM Call Option, sell 1 OTM Call Option, buy 1 ATM Put Option, sell 1 OTM Put Option. This strategy also bags lim ..
Upper Breakeven Point = Strike Price of Long Call + Net Premium Paid, Lower Breakeven Point = Strike Price of Long Put - Net Premium Paid
LONG CALL Vs REVERSE IRON BUTTERFLY - Risk & Reward
LONG CALL
REVERSE IRON BUTTERFLY
Maximum Profit Scenario
Underlying Asset close above from the strike price on expiry.
Strike Price of Short Call (or Long Put) - Strike Price of Long Call (or Short Put) - Net Premium Paid - Commissions Paid
Maximum Loss Scenario
Premium Paid
Net Premium Paid + Commissions Paid
Risk
Limited
Limited
Reward
Unlimited
Limited
LONG CALL Vs REVERSE IRON BUTTERFLY - Strategy Pros & Cons
LONG CALL
REVERSE IRON BUTTERFLY
Similar Strategies
Protective Put
Short Put Butterfly, Short Condor
Disadvantage
• In this strategy, there is not protection against the underlying stock falling in value. • 100% loss if the strike price, expiration dates or underlying stocks are badly chosen.
• Potential loss is higher than gain, complex strategy. • Not suitable for beginners.
Advantages
• Less investment, more profit. • Unlimited profit with limited risk. • High leverage than simply owning the stock.
• Able to profit whether stocks move in either direction up or down. • This strategy can be used by option traders who cannot use credit spreads. • Predictable maximum loss and profits, volatile strategy.
