Samrat Saha ( 18020)

SHORT CALL BUTTERFLY

18TH November : Enter the market

Underlying Index- Rs 11884.50

Strategy –

1) Buy 2 ATM Call @ Rs 11900

2) Sell 1 ITM Call @Rs 11850
3) Sell 1 OTM Call @ Rs12000

Delta Gamma Vega Theta Rho Option

Value at
10 %
volatility
11850 0.61 0.002 7.574 -4.757 1.941 106.27
11900 0.5 0.002 7.847 -4.735 1.622 70.87
12000 0.31 0.002 6.949 -3.975 1.002 38.98

Breakeven points
Upper Breakeven points
=Higher Strike price – Net premium received = 12000 – 3.51=11996.49
Lower Breakeven points
= Lower Strike price + Net premium received = 11850 + 3.51 =11853.51

On 26th November : Exit the Market

Payoff
Underlying Index – Rs 12064
Maximum profit = Net premium earned = Rs 3,51

Breakeven points has not been touched so I will secure the net premium
received and close my position.
Impact of Options Greeks :
Delta: The net delta of a Short Call Butterfly spread remains close to zero.
Vega: The Short Call Butterfly has a positive Vega. Therefore, one should buy
Short Call Butterfly spread when the volatility is low and expect to rise.
Theta: With the passage of time, if other factors remain same, “Theta” will have
a negative impact on the strategy, because option premium will erode as the
expiration dates draws nearer.
Gamma: The Short Call Butterfly will have a short gamma when it is initiated
DELTA- The net delta of a Short Call Butterfly spread remains close to zero.
This is delta neutral strategy so delta is close to zero.

Delta Total Position

delta
Short one Nov - 0.61 -.61
call@ 11850
Long Nov + 0.5 1
call@ 11900
Short one Nov - 0.31 .31
call@ 12000

Net position Delta = +.08

Gamma –

Gamma Net Gamma

Short one Nov call@ - 0.002 -.002
11850
Long Nov call@ 11900 +0.002 0.004
Short one Nov call@ -0.002 -.002
12000

Vega

Vega Position Vega

Short one Nov call@ 7.574 -0.0754
11850
Long Nov call@ 11900 7.847 0.15694
Short one Nov call@ 6.949 -0.06949
12000
Net position Vega = 0.01205

The Short Call Butterfly has a positive Vega. Therefore, one should buy Short
Call Butterfly spread when the volatility is low and expect to rise.
Theta

Theta Position Theta

Short one Nov call@ 0.04757 -0.04757
11850
Long Nov call@ 11900 0.04735 0.0947
Short one Nov call@ 0.03975 -0.03975
12000
Net Theta position = - 0.42075

Theta: With the passage of time, if other factors remain same, “Theta” will have
a negative impact on the strategy, because option premium will erode as the
expiration dates draws nearer