Processing math: 100%

Butterfly Spread Profit Calculator

Formula

To calculate the Maximum Profit (MP):

$\text{MP} = \text{HS} - \text{LS} - \text{P}$

Where:

$\text{MP}$ is the maximum profit per contract ($)
$\text{HS}$ is the higher strike price ($)
$\text{LS}$ is the lower strike price ($)
$\text{P}$ is the premium paid ($)

What is a Butterfly Spread?

A butterfly spread is a financial strategy that combines both bull and bear spreads together to create an investment that has a fixed risk but also a maximum profit. It involves buying and selling options at different strike prices to limit potential losses while capping potential gains.

Example Calculation 1

Let's assume the following values:

Higher Strike Price ( $\text{HS}$ ) = $50
Lower Strike Price ( $\text{LS}$ ) = $40
Premium Paid ( $\text{P}$ ) = $5

Using the formula:

$\text{MP} = 50 - 40 - 5 = 5 \text{ dollars per contract}$

The Maximum Profit is $5 per contract.

Example Calculation 2

Let's assume the following values:

Higher Strike Price ( $\text{HS}$ ) = $60
Lower Strike Price ( $\text{LS}$ ) = $45
Premium Paid ( $\text{P}$ ) = $7

Using the formula:

$\text{MP} = 60 - 45 - 7 = 8 \text{ dollars per contract}$

The Maximum Profit is $8 per contract.