标题: Butterfly spread max payoff [打印本页] 作者: Viceroy 时间: 2011-7-13 13:08 标题: Butterfly spread max payoff
why is there a Xm - Xl term? (strike price medium - strike price low).
I thought the max payoff would only depend on selling two calls, minus the cost of the two other calls.作者: Roflnadal 时间: 2011-7-13 13:08
Long Butterfly
Max Payoff = X2-X1+premium
Max Loss = premium
Short Butterfly
Max Payoff = premium
Max Loss = X2-X1-premium作者: PalacioHill 时间: 2011-7-13 13:08
think about it - you make the most with the fly spread when the options you're selling (the middle ones) expire at the money, rendering them worthless. at this point your low call is worth the most it will be before you start losing money on the short middle option.
payoff for fly:
max(0,S-X low) - c low -2max(0, S- X mid) + 2c mid + max(0,S-X high) - c high
max when s = X mid so,
max prof = X mid - X low - c low -2X mid + 2 X mid - c high = X mid - X low - c low - c high
