About Short Call Butterfly
A butterfly (fly) consists of options at three equally spaced exercise prices, where all options are of the same type (all put or all call) and expire at the same time.
In a short call fly, the outside strikes are sold and the inside strike is purchased. The ratio of a fly is always 1 x 2 x 1. The short call fly strategy combines a bear call spread with a bull call spread, where the inside strike is purchased twice between evenly spaced outside strikes.
Example: 35 / 36 / 37 fly
- Bear Call Spread: AMD (last price 36.32, Max Profit $0.54) with 12/20/19 expiration - Leg1 Strike = 35.00 (Leg1 Bid=3.00) and Leg2 Strike = 36.00 (Leg2 Ask=2.46)
- Bull Call Spread: AMD (Max Loss $0.52) with 12/20/19 expiration - Leg1 Strike = 36.00 (Leg1 Ask = 2.46) and Leg2 Strike = 37.00 (Leg2 Bid=1.94)
For the example above, you receive .54 for the 35 / 36 bear spread and you pay .52 for 36 / 37 bull spread.
- Net credit on the fly is .02.
- Max profit is realized if the underlying is outside the two short strikes and is equal to the credit received (.02).
- Max risk is equal to the distance between strikes less the net premium received (1.00 - .02 = .98).
Max profit is incurred when the underlying is outside of the short strikes (below the lower call and above the higher call). Max profit is equal to the credit received (.02).
Max loss equals the difference between strikes minus the credit received (.98). Max loss takes place if the options expire at the center strike.
Break Even Calculations
The upper BE is the higher strike sold – credit. In the example, 37 - .02 = 36.98. The lower BE is the lower strike sold plus the credit. In example, 35 + .02 = 35.02.
Both risk and max profit (credit) are limited in this strategy.
The screener results are initially sorted by descending "Probability."
Options information is delayed a minimum of 15 minutes, and is updated at least once every 15-minutes through-out the day. The screener displays probability calculations based on the delayed stock price at the time the strategy is updated. The new day's options data will start populating the screener at approximately 8:55a CT. Strikes that have not traded today are excluded from the results.
Main features of the Screener include:
- Ability to add various filters, with hundreds of different combinations.
- Save a Screener: When you've defined filters that you want to use again, save the screener.
- Load a Saved Screener: Select a previously saved set of Screener filters to view today's results.
- View the Results using Flipcharts: Page through charts of the underlying symbols on the results page.
- Download the Results: Download up to 1000 results to a .csv file. The Download will also pull all of the data fields present on the View you use. Barchart Premier Members may download up to 100 .csv files per day.
- Automatic Screener Emails: This option is available for Barchart Premier Members. When you save a screener, you can opt to receive the top 10, 25, or 50 results via email along with an optional .csv file of the top 1000 results. Emails can be sent at Market Open (9:00am CT), Mid-Day (12:00pm CT), End-of-Day (4:45pm CT), and Overnight (3:00am CT) Monday through Friday.
Note: When selecting the Filter View for your Screener email, a filter must identify a specific search value in order for it to be included in the email.
Barchart Premier subscribers can add or modify different filters on the screener to find calls on the most favorable stock options.
Once filters are added, you may drag and drop them in the SET FILTERS tab to reorder the way they appear on the RESULTS tab (when using the Filters View). Each filter you add has the "Order" icon which is used to reposition it.
To remove a filter from your screener, click the checkbox to the left of the filter name, then click the red "Delete" button at the top of the column. You may also select all filters for deletion by clicking the checkbox at the top of the column, which selects ALL filters for deletion. You will be asked to confirm your decision to delete.
So you can focus on the best options, the screener starts by setting certain options:
- Days to Expiration (monthly and weekly expirations) is 60 days or less
- Security Type is only Stocks
- The Options Volume for Leg1, Leg2 and Leg 3: for US market, must be greater than or equal to 100. For Canadian market, must be greater than or equal to 1.
- Open Interest for Leg1, Leg2 and Leg 3: for US market, must be greater than or equal to 500. For Canadian market, must be greater than or equal to 5.
- Moneyness Leg 2 is between -5% to 5% (ATM)
- Probability is greater than 25%
- Bid Price for both Leg 1 and Leg 3 is greater than 0.05
- Ask Price for Leg 2 is greater than 0.05
In addition, the option must not be an "adjusted" option (the option cannot be based on a split stock).
Note: "Restricted options" (options quotes marked with an asterisk * after the strike price, and found on an individual symbol's options page) are automatically removed from the screener. A "restricted option" is typically created after spin-offs or mergers, and is not tradeable.
We take the underlying stock price (l), the target price (b), days to expiration (t) and the implied volatility (v) to calculate probability:
Probability Above = 1-NORMSDIST (LN(b / l) / (v*SQRT (t / 365)))
Probability Below = NORMSDIST (LN (b / l) / (v*SQRT(t / 365)))
b = target price
l = underlying last price
v = implied volatility
t = days to expiration
Short Call Butterfly Break Even: Probability of the underlying trading outside of the break even points at expiration.
Short Call Butterfly Max Profit: Probability of the underlying expiring below the lower call strike or above the highest call strike.
The Results page contains three standard views. You may switch the view using the links at the top of the screener results table. The Main View shows the Volume and Open Interest for each option, while the Dividend & Earnings View can be used to highlight strategies with upcoming dividends and earnings. The Filter view shows you the data contained in the field(s) you've added to the screener.
A checkbox is provided on all Views to "Show Strategy Description" in the view. The Strategy Description can be helpful in breaking down how the options strategy was built. Example of a Short Call Butterfly description:
- SCB = strategy
- 11/18/22 = expiration date
- 145.00 = Leg 1 strike
- 5.00 = Strike Differential (difference between each leg: Leg1, Leg2 and Leg3)
- Symbol - the underlying equity. Clicking on the symbol will take you to the current quote page.
- Price - the delayed stock price at the time the strategy is updated for the underlying equity.
- Max Profit - Max profit is incurred when the underlying is outside of the short strikes (below the lower call and above the higher call). Max profit is equal to the credit received
- Max Profit % - Maximum profit expressed as a percent.
- Max Loss - Max loss equals the difference between strikes minus the credit received. Max loss takes place if the options expire at the center strike.
- +BE - The upper BE is the higher strike sold – credit.
- -BE - The lower BE is the lower strike sold plus the credit.
- Probability - the probability the last price will be at or beyond the break even point at expiration.
- Exp Date - the expiration date of the option
- Leg 1 Strike - the price at which the underlying security can be bought if the option is exercised.
- Leg 1 Bid - bid price of the Leg 1 option
- Leg 2 Strike - the price at which the underlying security can be bought if the option is exercised.
- Leg 2 Ask - ask price of the Leg 2 option
- Leg 3 Strike - the price at which the underlying security can be bought if the option is exercised.
- Leg 3 Bid - bid price of the Leg 3 option
Dividend & Earnings View
- Dividend - the dividend the equity pays on the Ex-Dividend Date. On the morning of the Dividend Ex-Date, the stock's price is lowered by the amount of the dividend that was just paid.
- Dividend Ex-Date - the first day on which the stock trades without the dividend. If you wish to receive the dividend, you must own the stock by the close of market on the day before the Dividend Ex-Date. Many times, a covered call is exercised early so the buyer can own the stock and collect the dividend. This typically happens to ITM options the day before the Dividend Ex-Date.
- Earnings Date - The date on which a company is expected to release their next earnings report. The prices are more volatile, which tends to inflate the prices of the near-the-money strikes. During a contract period when there is an earnings report due, the earnings announcement can dramatically shift the range in which the stock has been trading.