Executing a Long Call Butterfly on AT&T (T)

 AT&T (T) Long Call Butterfly Execution

Disclaimer: The content provided here is solely for informational purposes and should not be regarded as financial advice. Prior to placing trades, you should conduct your own investigation on the risks associated with options trading.

Consider the following scenario: AT&T (T) is currently trading at $18.00 per share. We anticipate that the stock price will likely experience a moderate increase or remain relatively stable in the near future; however, a substantial price surge is improbable. We intend to capitalize on this possible limited movement by establishing a long call butterfly spread.

The ten-step execution of this trade would be as follows:

Select the Expiration Date and Strike Prices in Step 1.

The expiration date will be evaluated as sixty days distant. In light of the prevailing price and our impartial perspective, the subsequent strike prices are determined:

Lower Strike Price (Long Call): $17.00 (should the price remain constant or rise marginally, we aim to generate a profit).
The middle strike price, which is established at $18.00 for short calls across two contracts, is intended to generate a premium.
An elevated strike price (long call) of $19.00 is desired to provide some safeguard against a moderate price increase.
Determine the Option Chain in Step 2

A brokerage platform will be utilized to gain access to the AT&T option chain specified with the desired expiration date. This will display the premiums (price points) for calls and options at different strike prices.

Check premium costs in Step 3.

Determine the premium prices for each desired option:

Purchasing one call option with a strike price of $17.00 will incur this expense as a debit.
Two call options with a strike price of $18.00 will be sold for this price (this will be a credit as we are selling).
Expense for one call option with a strike price of $19.00 (this will be deducted from our purchase price).
Fourth Step: Determine Potential Profit and Loss

Approximate the utmost possible profit and loss for this long call butterfly spread by utilizing an options calculator or a strategy designer tool. This will facilitate our comprehension of the trade's risk-reward profile.

Determine the contract quantity in Step 5.

Ascertain the desired quantity of lengthy call butterfly spreads to be generated. This is contingent on the quantity and risk tolerance of your account. Keep in mind that options are leveraged instruments; therefore, novices should begin modest.

Sixth Step: Place Orders

Enter the following orders for the long call butterfly spread on your brokerage platform:

Purchase X contracts (where X represents a desired quantity of call options) bearing a strike price of $17.00 and an expiration date of your choosing.
Offer two contracts of call options bearing a strike price of $18.00 and a specified expiration date.
Purchase X contracts of call options with the specified expiration date and strike price of $19.00.
Seventh Step: Observe the Trade

Ensure that you closely monitor the price fluctuations of AT&T and the value of your long call butterfly spread. As the stock price maintains proximity to the middle strike ($18.00), the likelihood of attaining the utmost potential profit increases.

Optional: Adjusting the Trade in Step 8.

You may wish to modify the trade prior to expiration, taking into account the stock price movement and your risk tolerance. This may entail the purchase or sale of supplementary options contracts in order to adjust the spread. However, adjustments entail supplementary expenses and intricacies; therefore, meticulously strategize your trade in advance.

Step 9: Early Exit or Expiration

The options contracts will be exercised automatically at expiration if they remain in-the-money. In order to capture a profit (or limit a loss), you may also elect to conclude the entire spread by selling your long calls and repurchasing the short calls prior to expiration.

Tenth Step: Assess the Trade

After the trade has been closed, allocate some time to conduct a performance analysis. Did the movement of the stock price correspond with your expectations? In what ways did the realized profit or loss diverge from the preliminary computations? Apply this experience to future endeavors in order to hone your options trading abilities.

Remember that trading options necessitates a thorough comprehension of the associated risks. Before placing any trades, you should always conduct your own investigation; this example is provided for illustrative purposes only.