Long Call Butterfly Screener Results For March 28th

A long call butterfly is entered when a trader thinks a stock will not rise or fall by much between trade initiation and expiration. When using calls, the trade is constructed by buying an in-the-money call, selling two at-the-money calls and buying an out-of-the-money call. The trade is entered for a net debit meaning the trader pays to enter the trade. This debit is also the maximum possible loss.

The maximum profit is calculated as the difference between the short and long calls less the premium that you paid for the spread.

Let’s take a look at Barchart’s Long Call Calendar Screener for March 28th:

The screener shows some interesting long call butterfly trades on popular stocks such NFLX, SQ, TSLA, CRM, WMT, TGT, MSFT and BA.

Let’s take a look at the first line item – a Long Call Butterfly on Netflix stock.

Using the March 31 expiry, the trade would involve buying the 310 strike call, selling two of the 340 strike calls and buying one of the 370 strike calls. The cost for the trade would be $1,531 which is the most the trade could lose. The maximum potential gain is $1,469. The lower breakeven price is 325.31 and the upper breakeven price is 354.69. The maximum profit is 95.95% with a probability of success of 50.3%.

The Barchart Technical Opinion rating is a 40% Buy with a weakest short term outlook on maintaining the current direction. Long term indicators fully support a continuation of the trend.

SQ Long Call Butterfly Example

Let’s take a look at another example, this time on SQ stock.

Also using the March 31 expiry, the trade would involve buying the 59 strike call, selling two of the 67 strike calls and buying one of the 75 strike calls. The cost for the trade would be $425 which is the most the trade could lose. The maximum potential gain is $375. The lower breakeven price is 63.25 and the upper breakeven price is 70.75. The maximum profit is 88.25% with a probability of success of 49.7%.

The Barchart Technical Opinion rating is an 8% Sell with a weakest short term outlook on maintaining the current direction. 

 

Mitigating Risk

Thankfully, Long Call Butterfly Spreads are risk defined trades, so they have some built in risk management. Some trades might like to exit the trade is the upper or lower breakeven price is breached.

Position sizing is important so that a 100% loss does not cause more than a 1-2% loss in total portfolio value.

Long Call Butterfly’s can also contain early assignment risk, so be mindful of that if the short calls are in-the-money and it’s getting close to expiry.

Please remember that options are risky, and investors can lose 100% of their investment. 

This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.

On the date of publication, Gavin McMaster did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.