Debit: Short Call Butterfly - low volatility strategy) Buy OTM Call Sell 2 ATM Calls Buy ITM Call This is essentially selling what I call a straddle on the spreads - by buying the one above the market and selling the one below the market you expect the market to breakout in one direction or the other further than the sum of both break even distances. Good risk/reward scenario. The longer to expiration the further it must move but the more you will make as strikes are wider.
The closest you could get on binaries would be buying the two closest OTM spreads. This would have the same risk/reward graph. (Since binaries are by nature a spread with a floor of 0 and ceiling of 100 they could be considered a spread.) Note you could widen the strikes to increase the range where profit could be made but you would by nature decrease probability of profiting (fortunately this would also decrease risk). This is essentially a strangle - i.e. buy the upper for 40 - sell the lower for 60 - total risk is $80 - if it finished OTM you lose 80 but if it breaks out you make $20 - the wider they are the more this can be balance but also the further they must travel…The other big issue is if the risk reward is not at 1:1 or greater then you will probably have to hold it to expiration to make money on it. A greater than 1:1 on max profit offers the best scenario (ie… risk 10 on each side - close when it hits either strike for $40 profit on one side $10 loss on the other - total risk $20 total profit $30 would be the ideal method - More could be made if held to expiration ie lose 10 on one side and make 90 on other - net 80 but then you risk losing everything if neither side expires ITM
Debit: Short Put Butterfly low volatility strategy ) Buy ITM Put Sell 2 ATM Puts Buy OTM Put This is essentially selling what I call a straddle on the spreads - by buying the one above the market and selling the one below the market you expect the market to breakout in one direction or the other further than the sum of both break even distances. Good risk/reward scenario. The longer to expiration the further it must move but the more you will make as strikes are wider.
Same as above
The closest you could get on binaries would be buying the two closest OTM spreads. This would have the same risk/reward graph. (Since binaries are by nature a spread with a floor of 0 and ceiling of 100 they could be considered a spread.) Note you could widen the strikes to increase the range where profit could be made but you would by nature decrease probability of profiting (fortunately this would also decrease risk). This is essentially a strangle - i.e. buy the upper for 40 - sell the lower for 60 - total risk is $80 - if it finished OTM you lose 80 but if it breaks out you make $20 - the wider they are the more this can be balance but also the further they must travel…The other big issue is if the risk reward is not at 1:1 or greater then you will probably have to hold it to expiration to make money on it. A greater than 1:1 on max profit offers the best scenario (ie… risk 10 on each side - close when it hits either strike for $40 profit on one side $10 loss on the other - total risk $20 total profit $30 would be the ideal method - More could be made if held to expiration ie lose 10 on one side and make 90 on other - net 80 but then you risk losing everything if neither side expires ITM
