About Long Call Butterfly
A butterfly (fly) consists of options at three equally spaced exercise prices, where all options are of the same type (all put or all call) and expire at the same time.
In a long a fly, the outside strikes are purchased and the inside strike is sold. The ratio of a fly is always 1 x 2 x 1.
The long call fly strategy combines a bull call spread with a bear call spread, where the inside strike is sold twice between evenly spaced outside strikes.
Example: 232.5 / 235 / 237.5 fly
- Bull Call Spread: AAPL with 11/15/19 expiration - Leg1 Strike = 232.50 (Leg1 Ask = 13.75) and Leg2 Strike = 235.00 (Leg2 Bid=11.75)
- Bear Call Spread: AAPL with 11/15/19 expiration - Leg1 Strike = 235.00 (Leg1 Bid=11.75) and Leg2 Strike = 237.50 (Leg2 Ask=10.15)
For the example above, you pay 2.00 for the 232.5 / 235 bull spread and you receive 1.6 for 235 / 237.5 bear spread.
- Net debit on the fly is .40.
- Max profit is realized if the underlying equals the 2 short strikes at 235.
- Max risk is the debit paid out and occurs when the underlying is above either highest strike (237.5) or below the lower strike (232.5).
Max Profit
Max profit is the strike differential less the cost for the fly. In the example, strike differential is 2.5 and debit is 0.4. Max profit is capped at 2.1. This is achieved if the underlying “pins” or lands right at 235 on expiration.
Max Loss
Max loss is the debit paid and will take place if the underlying expires below the 232.5 strike or above the 237.5.
Break Even Calculations
The upper Break Even (BE+) is the higher strike purchased – debit. In the example, 237.5 - 0.4 = 237.1. The lower Break Even (BE-) is the lower strike purchased plus the debit paid. In example, 232.5 + .4 = 232.9.
Both risk (net debit) and max profit are limited in this strategy.
The screener results are initially sorted by descending "Probability."
Options information is delayed a minimum of 15 minutes, and is updated at least once every 15-minutes through-out the day. The screener displays probability calculations based on the delayed stock price at the time the strategy is updated. The new day's options data will start populating the screener at approximately 8:55a CT. Strikes that have not traded today are excluded from the results.
Main features of the Screener include:
- Ability to add various filters, with hundreds of different combinations.
- Save a Screener: When you've defined filters that you want to use again, save the screener.
- Load a Saved Screener: Select a previously saved set of Screener filters to view today's results.
- View the Results using Flipcharts: Page through charts of the underlying symbols on the results page.
- Download the Results: Download up to 1000 results to a .csv file. The Download will also pull all of the data fields present on the View you use. Barchart Premier Members may download up to 100 .csv files per day.
- Automatic Screener Emails: This option is available for Barchart Premier Members. When you save a screener, you can opt to receive the top 10, 25, or 50 results via email along with an optional .csv file of the top 1000 results. Emails can be sent at Market Open (9:00am CT), Mid-Day (12:00pm CT), End-of-Day (4:45pm CT), and Overnight (3:00am CT) Monday through Friday.
Note: When selecting the Filter View for your Screener email, a filter must identify a specific search value in order for it to be included in the email.
Filters
Barchart Premier subscribers can add or modify different filters on the screener to find calls on the most favorable stock options.
Reordering Filters
Once filters are added, you may drag and drop them in the SET FILTERS tab to reorder the way they appear on the RESULTS tab (when using the Filters View). Each filter you add has the "Order" icon which is used to reposition it.
Deleting Filters
To remove a filter from your screener, click the checkbox to the left of the filter name, then click the red "Delete" button at the top of the column. You may also select all filters for deletion by clicking the checkbox at the top of the column, which selects ALL filters for deletion. You will be asked to confirm your decision to delete.
So you can focus on the best options, the screener starts with default filters:
- Days to Expiration (monthly and weekly expirations) is 60 days or less
- Security Type is only Stocks
- The Options Volume for Leg1, Leg2 and Leg 3: for US market, must be greater than or equal to 100. For Canadian market, must be greater than or equal to 1.
- Open Interest for Leg1, Leg2 and Leg 3: for US market, must be greater than or equal to 500. For Canadian market, must be greater than or equal to 5.
- Moneyness Leg 2 is between -5% to 5% (ATM)
- Probability is greater than 25%
- Ask Price for both Leg 1 and Leg 3 is greater than 0.05
- Bid Price for Leg 2 is greater than 0.05
In addition, the option must not be an "adjusted" option (the option cannot be based on a split stock).
Note: "Restricted options" (options quotes marked with an asterisk * after the strike price, and found on an individual symbol's options page) are automatically removed from the screener. A "restricted option" is typically created after spin-offs or mergers, and is not trade-able.
Probability Calculation
We take the underlying stock price (l), the target price (b), days to expiration (t) and the implied volatility (v) to calculate probability:
Probability Above = 1-NORMSDIST (LN(b / l) / (v*SQRT (t / 365)))
Probability Below = NORMSDIST (LN (b / l) / (v*SQRT(t / 365)))
b = target price
l = underlying last price
v = implied volatility
t = days to expiration
Long Call Butterfly Break Even: Probability of the underlying trading inside of the break even points at expiration.
Long Call Butterfly Max Risk: Probability of the underlying expiring below the lower call strike or above the highest call strike.
Views
The Results page contains three standard views. You may switch the view using the links at the top of the screener results table. The Main View shows the Volume and Open Interest for each option, while the Dividend & Earnings View can be used to highlight strategies with upcoming dividends and earnings. The Filter view shows you the data contained in the field(s) you've added to the screener.
A checkbox is provided on all Views to "Show Strategy Description" in the view. The Strategy Description can be helpful in breaking down how the options strategy was built. Example of a Long Call Butterfly description:
LCB_10/21/22_100.00_17.00
where:
- LCB = strategy
- 10/21/22 = expiration date
- 100.00 = Leg 1 strike
- 17.00 = Strike Differential (difference between each leg: Leg1, Leg2 and Leg3)
Main View
- Max Profit % - Maximum profit expressed as a percent.
- Max Loss - Max loss is the debit paid and will take place if the underlying expires below the Leg 1 strike or above the Leg 3 strike.
- +BE - The upper Break Even (BE+) is the higher strike purchased – debit.
- -BE - The lower Break Even (BE-) is the lower strike purchased plus the debit paid.
- Probability - the probability the last price will be at or beyond the break even point at expiration.
- Exp Date - the expiration date of the option
- Leg 1 Strike - the price at which the underlying security can be bought if the option is exercised.
- Leg 1 Ask - ask price of the Leg 1 option
- Leg 2 Strike - the price at which the underlying security can be bought if the option is exercised.
- Leg 2 Bid - bid price of the Leg 2 option
- Leg 3 Strike - the price at which the underlying security can be bought if the option is exercised.
- Leg 3 Ask - ask price of the Leg 3 option
Dividend & Earnings View
- Dividend - the dividend the equity pays on the Ex-Dividend Date. On the morning of the Dividend Ex-Date, the stock's price is lowered by the amount of the dividend that was just paid.
- Dividend Ex-Date - the first day on which the stock trades without the dividend. If you wish to receive the dividend, you must own the stock by the close of market on the day before the Dividend Ex-Date. Many times, a covered call is exercised early so the buyer can own the stock and collect the dividend. This typically happens to ITM options the day before the Dividend Ex-Date.
- Earnings Date - The date on which a company is expected to release their next earnings report. The prices are more volatile, which tends to inflate the prices of the near-the-money strikes. During a contract period when there is an earnings report due, the earnings announcement can dramatically shift the range in which the stock has been trading.
