Short Call Butterfly.
Description
The Short Call Butterfly is another volatility strategy and is the opposite of a Long
Call Butterfly, which is a rangebound strategy. The reason that short butterflies
arent particularly popular is because even though they produce a net credit, they
offer very small returns compared to straddles and strangles with only slightly less
risk.
The Short Call Butterfly involves a low strike short call, two ATM long calls, and
an OTM short call. The resulting position is profitable in the event of a big move by
the stock. The problem is that the reward is seriously capped and is typically
dwarfed by the potential risk if the stock fails to move.
P/L Profile
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