Real Example (July 2025)
A short call butterfly involves selling one lower strike call, buying two at-the-money calls, and selling one higher strike call. It is a net credit trade that profits from significant price movement away from the center.
- Stock: XYZ Corp
- Outlook: Expecting high volatility
- Setup: Sell 1 XYZ $95 Call @ $6.00, Buy 2 XYZ $100 Calls @ $3.50, Sell 1 XYZ $105 Call @ $1.50
- Net Credit: $0.50 ($50 per contract)
- Max Loss: $4.50 ($450 per contract)
- Max Gain: $50
- Breakeven: $95.50 and $104.50
