Optrix Bull Butterfly Strategy: Build and Analyze Bullish Trades with ORCA!
Introduction
Traders using options often search for options strategies that allow them to have a bullish position but with the risk well-defined. The Bull Butterfly is one such options strategy, which means that the underlying is expected to approach a particular price range instead of going up to infinity.
Enrich Money ORCA Optrix allows the traders to implement this strategy, see the payoff chart and analyze various metrics like maximum profit, maximum loss, break-even point, chance of profit, Greeks and margins before placing a trade.
Explore Bull Butterfly setups, payoff charts, Greeks and risk metrics conveniently with a feature-rich best stock market app India.
What Is a Bull Butterfly Strategy?
Bull Butterfly refers to the defined-risk options strategy that is usually constructed by means of three strike call prices:
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Buy 1 lower call price
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Sell 2 middle call prices
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Buy 1 upper call price
The middle call price is used as the range for maximum pay-off creation for the defined-risk strategy.
The Optrix example includes NIFTY as follows:
|
Position |
Expiry |
Strike |
Type |
Lots |
Price |
|
Buy |
22-Sep-2026 |
23,200 |
CE |
1 |
Rs.259.85 |
|
Sell |
22-Sep-2026 |
23,400 |
CE |
2 |
Rs.90.75 |
|
Buy |
22-Sep-2026 |
23,600 |
CE |
1 |
Rs.9.55 |
The following image shows Price Pay Rs.87.90 (Rs.259.85 − (Rs.90.75 × 2) + Rs.9.55 = Rs.87.90 and Premium Pay Rs. 7,713.50 of the strategy combination that Optrix presents.
How to Create Bull Butterfly in ORCA Optrix
The trading strategy could be created using the entry of the necessary call legs along with their respective strikes and quantities. The trading strategy that has been created above uses the lower 23,200 CE and the higher 23,600 CE along with the sale of two 23,400 CE contracts.
After completing the addition of the three legs, some options like Clear All Trades and Add Trades/Review Strategy appear in Optrix.
Understanding the Optrix Strategy Metrics
Once the Bull Butterfly is built, Optrix provides a consolidated presentation of the strategy. The snapshot displays:
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Maximum Profit: Rs.7286.50
-
Maximum Loss: -Rs.5713.50
-
Risk/Reward: 0.78
-
Probability of Profit (POP): 11.44%
-
Legs: 3
-
Breakeven Points: around Rs.23,287.80 and Rs.23,512.20
They provide an insight into the nature of the possible gains and losses from the selected combination prior to the evaluation of the trade.
Reading the Bull Butterfly Payoff Graph
Payoff graph is especially helpful in visualizing the behavior of the strategy under varying NIFTY prices.
In case of Optrix strategy, maximum payoff is found to be near the NIFTY price of 23,414, which happens to be the middle strike price of the strategy. It also displays the present NIFTY price and shows a comparison of payoff at different price levels.
As per the screenshot below, payoff of the strategy is about Rs.2,563.76 (+10.95%) at the present target level.
Payoff curve shows the variation in the payoff as NIFTY deviates from the middle strike price.
Analysing the Payoff Table
Optrix also offers the Payoff Table function, which enables traders to evaluate the projected P&L based on various target prices.
The Payoff Table shows various target prices in the range of 23,380 to 23,460 and presents projected results in both cases of On Target Date and On Expiry.
This helps understand the level of sensitivity of the Bull Butterfly strategy to price changes.
P&L Table and Individual Legs
The P&L Table offers further insight into the structure of the strategy. It displays each option leg separately, along with its target P&L and target price, culminating in the total projected P&L.
It will allow traders to see the role played by the long and short option legs in the construction of the whole strategy and not just the payoff diagram.
Demat account open online free and access ORCA Optrix to analyse defined-risk options strategies before trading.
Check Greeks Before Evaluating the Trade
Optrix offers a Greeks section which includes:
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Delta
-
Theta
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Rho
-
Gamma
-
Vega
The mentioned images display Greeks of both legs of the strategy along with the overall Greeks. This will help in understanding how the strategy may behave in case of changes in price of underlying asset and other factors.
Why Use Optrix for Bull Butterfly Analysis?
The most significant feature of developing the strategy within Optrix is the ability to check different features of the trade within one window. Rather than checking these factors for every single option separately, the strategy window enables the user to view:
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Strategy legs
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Price of options
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Maximum gain/loss
-
Breakeven
-
Probability of profit
-
Graph of pay-off
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P&L table
-
Greeks
-
Margin information
This is an effective way to evaluate a Bull Butterfly prior to making the trade.
Key Risks to Consider
Bull Butterfly does not guarantee profitability as the profitability of Bull Butterfly hinges on how much the underlying is near the chosen strikes. Maximum profit is mainly realized near the middle strike price, while being off target may affect profitability. The traders ought to look at the payoff diagram, POP, maximum loss, Greeks and margin requirements rather than depending on the maximum profit alone.
Conclusion
Optrix Bull Butterfly offers a framework that helps traders build and evaluate the performance of the bullish risk-defined strategy. The NIFTY case study presented below depicts how the three legs of the strategy are built, the expected payoff, break-even, and the various P&L and Greeks that Optrix offers to traders for consideration.
Use a demat account calculator to understand applicable account-related costs while evaluating your overall trading setup.
Frequently Asked Questions
Is the Bull Butterfly a defined risk strategy?
A Bull Butterfly involves one call purchase at lower strike, two call sales at middle strike and one call purchase at higher strike.
What is the point of maximum profit in the Bull Butterfly?
Maximum payoff in the strategy usually happens when the underlying expires near the middle strike.
What is shown by Optrix for Bull Butterfly?
Optrix shows strategy construction, payoff, P&L, break-even, POP, Greeks and margins information.
Is the Bull Butterfly a limited-risk strategy?
The presented Bull Butterfly is a limited-risk strategy due to the set maximum loss determined by its structure and premiums.
Can traders analyze payoff prior to placing an order?
Yes, payoff analysis is available for the Bull Butterfly strategy in Optrix application.
Disclaimer: This blog is dedicated exclusively for educational purposes. Please note that the securities and investments mentioned here are provided for informative purposes only and should not be construed as recommendations. Kindly ensure thorough research prior to making any investment decisions. Participation in the securities market carries inherent risks, and it's important to carefully review all associated documents before committing to investments. Please be aware that the attainment of investment objectives is not guaranteed. It's important to note that the past performance of securities and instruments does not reliably predict future performance.
