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Butterfly spreads - anyone use them?
Does anyone here have experience (or work with a firm with experience) using butterfly spreads? Interested to know what kind of cost (initial outlay) is involved, and whether this is directly comparable to the risk free rate.
Obviously the range across which options are spread and volatility of the underlying will affect the cost, but wondered if there is a sort of "rule of thumb" that can be applied to estimate the setup costs?
This isn't really anything to do with the exam, more just out of interest (if the cost was indeed less than the sum of lending rate on secured loans plus purchase of a put option on the underlying, then this strategy could provide a great core to an absolute return strategy)