Lets clearly see what is the scope of profit for the current spread of
27June 11700 CE+PE 98+90 = 188
Collected: 188
4July 11800 Ce +11600 Pe 68+90 = 158
Paid: 158
Best case Scenario:
Expiry is at 11700, in which case 188 becomes zero
And wings decay to 98.
Then, the net profit is:
188-0 = 188 points
98-158= -60 points
-8 expense
----------------
Net profit 188-60-8= 120 points (Bravo!)
If expiry is at 11750,
188-50=+138
98-158=-60
-8 expense
----------------
Net Profit 138-60-8=70 still very good
If expiry is at 11800,
188-100 = +88
Net Profit: 88-60-8 = 20 points.
It starts getting a little dry. But, beyond this, I think there may be losses, but how much it depends on the value of wings.
If expiry is at 11850,
188-150 = +38
the CE wing will have gained to 40 + 90 = 130
the PE wing would be paltry, around 15
therefore, 145-158 = -15
Net Profit: 38-15-8 = 15 points.
If expiry is at 11900,
188-200 = -15
the CE wing will have gained to 80 + 80 = 160
the PE wing would be paltry, around 5
therefore, 165-158 = +15
Net Profit: -15+15-8 = -8 points.
From the above, one could arrive at the following conclusions:
a. If expiry is near the starting point, which is 11700 in this case, we are happiest.
b. We have good solid protection from capital loss till 200 points.
c. It makes sense to buy a bull call spread beyond a 100 point move.
Reasoning:
If expiry is at 11800,
Net Profit: 88-60-8 = 20 points.
Now if I buy a 100-point bull call spread like the following:
Buy 27Jun11800 CE
Sell 27Jun11900CE
It will cost 30
Then:
Case 1: If price moves in its direction the the bull call makes a net 70 points. So, the trade off is such that the bull call spread earns, but the iron butterfly ends up not performing, expiry happens at 11800 and Butterfly gives a Net Profit of 20 points.
Case 2: Else if price reverses and the Bull Call does not perform, then I square it off for a 10 point loss. But, the Butterfly does end up earning: Expiry happens at 11750 or 11700 which earns 70 to 120 points.
Bottom line is, this kind of Calendar-Spread Iron Butterfly just might be workable.