Page 20 - PRIAA Glossary
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BUTTERFLY
A trading strategy involving the purchase of four European call options in equal quantities. The strategy is designed to be in-the-money at maturity if the spot price is within a narrow range, with no downside loss (other than premium) if the spot price at maturity falls outside of this range on either side. To construct the strategy, a call option is purchased (long) with strike (X - n), another call option is purchased (long) with strike (X + n), and two call options are sold (short) with strike X, where X is the current spot price. The trade is direction- neutral, and the maximum profit is realised when the price of the underlying is X at maturity.
BUY SIDE
Firms which invest in assets and provide investment services for their clients. Buy-side entities include pension funds, hedge funds and mutual funds. The opposite would be the sell-side which provides brokerage services to the buy side.
BUY-AND-HOLD
A long-term investment method, in which an investor goes “long” on a stock and rarely liquidates the position.
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