okay so im still learning, but since a broken winged butterfly gains max profit as it passes through the "pop" zone. wouldnt putting in a take profit, kind of act like a stop loss? the only downside is if it blew threw it immediately and your amount gained wasnt enough to trigger it.
am i just being stupid or is this a legitimate strategy.
does a take profit act as a stop loss for broken wing butterflys?
byu/igloosauna inoptions
Posted by igloosauna
2 Comments
No mate, it’s for “CIS” white men only.
You’re imagining the P/L curve of a broken wing fly as it is shown at expiration. However, while the position is open with some time to expiration, the curve won’t look like that at all.
Check out what the graph looks like at various times to expiration here (you have to click to show the graph instead of table):
[http://opcalc.com/RY](http://opcalc.com/RY)
I’ve taken a screenshot here:
[https://imgur.com/pGcW9V4](https://imgur.com/pGcW9V4)
Note how you have to get very close to expiration to begin realizing a profit – you need the short legs to lose their value, and when max profit is at those strikes, it means you have to wait until expiration for them to reach zero. As a general rule, this is true for any P/L graph with a pointed tip (e.g., straddles and flies) – it means max profit at the strike of the short legs.