Long Call Butterfly Spread

         A long call butterfly spread is an independant trade, that uses a combination of four calls, and is a bidirectional strategy (meaning it will be profitable if the price does not move in either direction). The trader buys a single in the money call contract and a single out of the money call contract, and then sells two at the money call contracts. If the price does not move, then only the lower striking long call will expire in the money, and the trade will be profitable. If the price moves up significantly, all of the calls will go into profit, and if the price moves down significantly, all of the calls will expire worthless, both of which result in a loss equal to the premium paid for the calls. The trade is entered at a debit (the long calls cost more than the premium received for the short calls), and is therefore a debit spread strategy (i.e. the maximum loss is taken upon entering the trade).

Making a Long Call Butterfly Spread

1. Purchase a single in the money call contract, and a single out of the money call contract
2. Sell two at the money call contracts
3. Wait for the at the money and out of the money calls to expire worthless to realize the profit

Risk and Reward

The risk of a long call butterfly spread is low, and is limited to the premium paid to enter the trade, regardless of how far the price moves up or down (both of which are against the trade). The risk of a long call butterfly spread is calculated as:
Maximum Risk = Difference between long and short call premiums

Maximum Loss = Premium received - Premium paid (initial debit)
The reward of a long call butterfly spread is limited to the difference between the strike prices of the lower striking long call and the short calls. The profit of a long call butterfly spread is calculated as:
Maximum Profit = Difference between lower striking long call and short calls strike price

Profit = Short calls strike price - Lower striking long call

Option Strategies

1). Bull Spread: when the market is expected to go up (bullish outlook) a bull spread can be created to make profits in rising market with minimum amount of risk. Bull spread is created by buying a call/put of lower strike price and selling another call/put of higher strike price. 2). Bear spread:

When the market is expected to go down (bearish outlook) a bear spread can be created to ensure profits in a falling market with minimum amount of risk. Bear spread is created by buying a call/put of higher strike price and selling another call/put of lower strike price.

3). Bottom straddle or Straddle purchase:

when the market is expected to be volatile and the direction of it is not clear bottom straddle strategy can be created. Bottom straddle can be created by buying a Call and a Put together of the same strike price and same expiry date.

4). Top straddle or Straddle sell:  when the market is expected to move in a sideways zone a top straddle can be created. Top straddle can be created by selling a Call and a Put together of the same strike price and same expiry date.
5). Butterfly Spread:  when the market is expected to move in a sideways zone a Butterfly spread can be created. Butterfly spread can be created by buying two call options, one with low strike price and the other with comparatively high strike price, and selling two call options having the strike price which lies in the middle of above two strike prices and which is close to the current prevailing market price.

6). Strangles:  

when the market is expected to be volatile and the direction of it is not clear bottom straddle strategy can be created by buying a call of higher level and buying a Put of lower level. Both of these price levels of buying Call & buying Put forms the basis of ranges of Index beyond which it is expected to remain. If the prices remain outside the price range he makes profit otherwise loss.

7). Strips:  

when the market is expected to be volatile and the direction of it is not clear bottom strips strategy can be created by buying a call and two puts of same strike price. Investor makes profit if the exercise price close far from the strike price of Call and Put taken.

8). Straps:  

when the market is expected to be volatile and the direction of it is not clear bottom straps strategy can be created by selling two calls and a put of same strike price. Investor makes profit if the exercise price close far from the strike price of Call and Put taken.

Free Nifty future tips

Nifty Option Call and Put can buy at the trigger price of Nifty Future, a low risky trader can move sl to trigger price when it reaches first target. Make partial profits on each targets. Don't trade without Stop loss.

Nifty Future Tips For 5/12/2011
Scrip	Trigger	Price	SL	T1	T2	T3
NIFTY	Buy above	5106	5083	5126	5146	5178
	Sell Below	5061	5083	5041	5021	4989

Strike price

        Strike price is another important term used in options trading. It is the price at which the option can be exercised. In simple, it is the betting or expectation price where you think markets may go up to. Let us take nifty call put for better understanding. For instance, if nifty is trading at 5480 and you think markets may move further 220 points UP, then one can opt to buy a Nifty CALL of 5700 strike price (5480+220=5700) — ‘Nifty 5700 CE’. (5700 is not the buying price value but only an estimated level till where nifty many reach in the near future, moreover its just like a name given to that option. Current buying price value is called premium where you buy, say it as Rs.40) As well if you predict that nifty may crash 280 points more, you can opt to buy a Nifty PUT of strike price 5200(5480-280= 5200) — ‘Nifty 5200 PE’ (say its current price/premium is around 50).
NOTE: Strike prices are available only with a difference of 100. So trader has to opt for 5600 CALL, 5700 CALL or 5800 CALL ……
Now what is my profit if my expection is correct?
In the first case, if you expectation is correct, you would get a profit around 220 points. You predicted market when the price is around 5480 and as per your expectation nifty travelled from 5480 to 5700 (220 points). At the time of your buying, we assumed the premium/current price is around 40. When market reaches your expected level of 5700, you get 40+220=260 where you get a profit of 220 points leaving your initial investment 40 points. Now if the lot size of nifty is 50 shares, you would get a final amount of Rs.13,000 (260 points X 50 shares) — 11,000 profit and 2,000 investment return.
In the second case, if your bet is correct, nifty fell from 5480 to 5200 and at the time your PUT buy, say the current price of premium is 50, you get 50+280 = 330 points in which 280 is the profit and 50 being your investment return.
Summary of strike price:

• Strike price is the term used to refer the gap between expected move and current nifty price
• Strike prices are available with a difference of 100 points for nifty index
• Based on current price, strike prices are divided into ITM, OUT and ATM (moneyness of options