Month: August 2023

Apache is functioning normally

The U.S. Department of Housing and Urban Development (HUD) this week announced a package of regulatory and administrative waivers that will allow the use of HUD funding to assist with the recovery of Maui after the island endured a series of devastating wildfires. The waivers come as thousands of government-backed mortgages on the island have been impacted by the disaster, according to data released by the office of Hawaii Gov. Josh Green (D).

Based on the data, 5,200 mortgages serviced by Freddie Mac, 9,800 mortgages serviced by Fannie Mae and 2,400 mortgages serviced by Ginnie Mae on Maui have all been impacted by the fires. Additionally, 1,300 Federal Housing Administration (FHA) mortgages including two public housing and two senior living buildings have been impacted, as well as 927 U.S. Department of Veterans Affairs (VA) mortgages.

However, this data only provides a partial picture. The governor’s office said that the Lāhainā and Kula areas are “still being assessed.” Lāhainā, a popular tourist destination on the island, was the town most affected by the spread of the wildfires. Most of the structures in the town were destroyed.

HUD’s waiver package aims to accomplish five key goals in assistance for Maui, including suspending the community development block grant (CDBG) public services cap to provide additional support services related to the effects of the disaster on individuals and families, which will allow for HUD funds to pay for food, water and “other emergency needs,” HUD said.

The funds will also allow for new housing construction with CDBG funding in declared-disaster areas, and provide flexibility in HOME tenant-based rental assistance requirements “to reduce burden for those seeking assistance.” The HOME local matching contribution requirements will also be waived in an effort to provide “greater flexibility in the entities that can expeditiously provide housing to displaced persons and repair properties damaged by the disaster.”

Finally, the waivers will allow for an extension of time so that  “individuals can receive temporary assistance, including CDBG emergency grant payments and ESG rental assistance.”

The Consumer Financial Protection Bureau (CFPB) has also been active in the conversation since Americans will typically aim to find ways to donate money, clothing or other materials to the disaster area in the immediate aftermath and beyond. CFPB warns that some bad actors typically aim to take advantage of these inclinations.

“It’s natural to want to lend a hand to others who have been affected by an emergency,” CFPB said in an announcement distributed on Friday. “You can share our tips for sending financial support to others, including fast facts about mobile apps. And, refer to our tips for avoiding scams and fraud that can entrap people trying to help.”

Source: housingwire.com

Apache is functioning normally

When you’re buying a life insurance policy, you may need coverage that begins right away, but full underwriting can take weeks to complete. Simplified issue life insurance is an option for people who need immediate coverage. However, that convenience comes at a cost. You’ll often pay higher premiums and receive a lower death benefit than you’d get through a standard life insurance policy.

What is simplified issue life insurance?

A traditional life insurance policy requires a medical exam and may take four to eight weeks to be in force. Simplified issue life insurance is a type of life insurance policy that bypasses the typical underwriting process and allows you to purchase coverage immediately.

With simplified issue life insurance, you’ll skip the life insurance medical exam and lab tests. Instead, you’ll provide some basic information, like your age, address, occupation, height and weight, and answer a health questionnaire.

You can apply online, by phone, or in person through a life insurance agent or broker. Usually, you’ll find out immediately whether your application has been approved or denied. If approved, you can typically have your policy in force that same day.

How does simplified issue life insurance work?

Simplified issue underwriting is available for most types of policies, including term life, whole life, and some types of universal life insurance. According to a 2020 report by the Society of Actuaries, major insurers approve about 70% of simplified issue applications

.

When you apply for a simplified issue policy, the insurance company will base its decision on the information you’ve provided. But carriers also use third-party reports to determine your eligibility, such as:

  • MIB Group reports. Your file with the MIB Group, formerly known as the Medical Information Bureau, shows whether you’ve applied for individually underwritten life insurance, health insurance, disability insurance, and long-term care insurance in the last seven years, along with whether you’ve been rejected for coverage

    .

  • Prescription drug history. Insurers check databases that aggregate your prescription drug history using records from health insurance companies, pharmacies, and health care providers.

  • Motor vehicle records. Insurance companies will check for things like DUIs, suspended driver’s licenses and speeding tickets when they decide whether to insure you.

Some companies also use internet searches and random phone interviews to verify information. The use of criminal background screenings and medical billing data is becoming more common, as well.

Answering “yes” to a question that indicates a health condition doesn’t necessarily disqualify you. But if your answers are inconsistent with third-party information collected, your life insurance application could be referred for further review. For example, if you say you have no history of heart disease but your prescription records show you take medication for a heart condition, the insurer could require standard underwriting.

Who’s eligible for simplified issue life insurance?

Simplified issue life insurance is available to people up to age 75, according to the Society for Actuaries report. Though age restrictions vary by carrier, you’ll often qualify for a higher death benefit if you’re in the range of 16 to 55 years old.

Unlike with guaranteed life insurance, however, you can be rejected for simplified issue insurance. If you have a serious underlying health issue or you engage in dangerous activities, your application could be denied or referred to an underwriter.

How much coverage can you get?

When you apply for a simplified issue policy, your insurer has less information about you than it would get if you went through a full life insurance underwriting process that included a medical exam. That makes you riskier to insure from an insurer’s perspective. As a result, simplified issue policies generally have lower death benefits than traditional policies.

Though some insurers offer as much as $500,000 in coverage, a typical simplified issue term policy will offer coverage amounts ranging from $100,000 to $250,000. Customers older than 55 are frequently limited to $100,000.

Simplified issue permanent life insurance policies are typically designed for burial and other final expenses, so they offer lower death benefits. Many simplified issue whole life insurance policies have maximum death benefits between $25,000 and $50,000.

Simplified issue life insurance pros and cons

Advantages of simplified issue life insurance

  • Simplified issue life policies don’t require a medical exam or bloodwork.

  • If your application is approved, coverage can begin the same day.

  • You can typically buy more coverage than you’d get through a guaranteed issue policy.

Disadvantages of simplified issue life insurance

  • You may qualify for lower premiums and more coverage through a traditional policy.

  • Your application may be rejected if you have preexisting health conditions, a dangerous job, or high-risk hobbies.

Is simplified issue life insurance worth it?

A simplified issue policy may be worth it if you’re in relatively good health and you need your policy to be in force right away. For example, if you’re a new parent seeking coverage, you may not want to wait several weeks for coverage to begin. Or if you’ve been ordered by a court to obtain life insurance as part of a child support agreement, you may need your policy to be in force immediately.

If you need immediate coverage, you may have the option of buying a temporary policy while you wait for a traditional life insurance application to be approved. But if you have dependents and you’re unwilling to deal with the time and medical exam required for most life insurance policies, buying simplified issue life insurance can be worth it to provide financial protection for your loved ones.

Alternatives to simplified issue life insurance

Simplified issue life insurance is worth exploring when you have an immediate life insurance need, but it’s not the only option. Here are some alternatives to consider.

  • Buy temporary life insurance to avoid a coverage gap. If you’re willing to undergo a medical exam but need coverage to begin immediately, you could purchase temporary life insurance for protection while your application is processed. The applications for temporary coverage and simplified issue life insurance are similar in that you’ll only need to complete a basic questionnaire. But once you obtain temporary life insurance, you’ll typically have around 90 days to complete a medical exam for your permanent policy. Insurers often limit your coverage to $1 million through a temporary policy.

  • Undergo full underwriting. Going through the standard underwriting process takes time, and the medical exam can be intimidating. But it could save you money on premiums, especially if you’re young and in good health.

  • Obtain group life insurance through your employer. If your employer offers group term life insurance as a benefit, you can usually obtain coverage at little to no cost, without a medical exam or answering health questions. The death benefit is usually capped at one or two times your salary. You may have the option to purchase additional coverage, although you might need to provide health information or undergo an exam. Most group policies won’t allow you to keep your coverage if you leave your job

    .

Frequently asked questions

What’s the difference between simplified issue and guaranteed issue life insurance?

A guaranteed issue policy is a type of life insurance that accepts anyone, with no medical exam or health information required. A simplified issue life policy offers a streamlined application process, but coverage isn’t guaranteed and you’ll need to answer questions about your medical history when you apply.

Can I get life insurance without a medical exam?

You can obtain both simplified issue life insurance and guaranteed issue life insurance with no exam. However, an exam may help you lower your premiums and qualify for more coverage if you’re young, healthy and don’t engage in risky activities.

Does simplified whole life insurance build cash value?

As with any whole life policy, simplified whole life insurance will build cash value. But because these policies are often intended specifically for final expenses, the cash value is minimal compared with traditional whole life policies.

Source: nerdwallet.com

Apache is functioning normally

Apartment listing service RentCafe.com has updated its monthly rent report , showing that the national average rent has increased 2.9 percent in June to cross the $1,400 mark.

That unfortunate statistic, for renters at least, means they’re paying an average of $40 more per month than they did one year ago.

The report also found that this increase was rather widespread across the United States, with rents rising in 88 percent of the country’s 250 biggest cities in June. Just two percent of those cities saw rents decrease, while 10 percent remained unchanged.

The rising rents were ubiquitous across what RentCafe calls rental mega-markets in the country, with the city of Orlando, Florida, clocking in an average rent for a two-bedroom apartment of $1,387 in June, which represents 8.4 percent growth from the same month one year ago. That was the fastest growth of any city, RentCafe said.

Other key markets also saw rapid growth. Las Vegas for example saw rents up by 7 percent, while Phoenix saw its prices rise by 6.4 percent, and San Diego, 5.4 percent. The picture was a bit better on the east coast with slower rental price growth of just 1.5 percent in Manhattan and 0.6 percent growth in Baltimore.

Heading southwards, mid-size cities such as Tampa Bay also saw big rises in rental prices, with the cost of an average two-bedroom apartment growing by 6.2 percent compared to one year ago. The cities of Mesa and Sacramento also saw prices rise by a steep 5.9 percent.

The biggest rental increases however were left for some of the U.S.’s smallest cities. Midland, Texas and Odessa, Texas, saw rental prices grow by an astounding 38.8 percent and 36.6 percent respectively.

Doug Ressler, Director of Business Intelligence at Yardi Matrix, which supplied the data for this study, said there is a growing trend among homeowners to sell their houses and rent a place instead, which is taking up a significant portion of the current demand for rental properties.

“Generational and demographic changes, shifting employment opportunities, policy and economic influences are impacting the housing market and turning home buyers into renters nationally,” he said.

He also said that rapid appreciation and construction cost for homes have a significant impact too, further increasing this trend. “Student loan debt, smaller household sizes, larger down payments requirements, rising interest rates, are also contributing to this change,” he added.

Mike Wheatley is the senior editor at Realty Biz News. Got a real estate related news article you wish to share, contact Mike at [email protected].
Latest posts by Mike Wheatley (see all)

Source: realtybiznews.com

Apache is functioning normally

“Barbie” is coming to streaming services. Greta Gerwig’s hit movie, which broke records both at the box office and created viral trends in the fashion and beauty industry, will be available on digital platforms on Sept. 5, according to Variety.

The film, which came out July 21, stars Margot Robbie as Barbie, alongside Ryan Gosling, America Ferrera, Kate McKinnon, Simu Liu, Issa Rae and more portraying the fellow citizens of Barbieland. Upon its release, the movie broke a number of records, bringing in $155 million on its opening weekend and becoming the biggest film debut in history for a woman director.

From left: Ryan Gosling and Margot Robbie in “Barbie.”

©Warner Bros/Courtesy Everett Collection

The film had sales of $537.4 million at the U.S. box office and is now Warner Bros.’ highest-grossing domestic release — the former title holder was Christopher Nolan’s “The Dark Knight,” which made $536 million at the U.S. box office in 2008. Overall, “Barbie” has amassed more than $1 billion at the box office worldwide so far.

How to stream the “Barbie” movie at home?

Starting Sept. 5, the “Barbie” movie will be available to stream on Prime Video and AppleTV+. The movie is currently available to preorder on Prime Video for $24.99.

In addition, the “Barbie” movie is currently available for preorder on Blu-ray and DVD at Walmart ($24.96), Amazon ($24.96) and Target ($26.99).

Although it’s not confirmed yet, based on previous Warner Bros. movies, “Barbie” will likely be available to stream on Max later this year.

Margot Robbie as Barbie and Ryan Gosling as Ken in “Barbie.”

Warner Bros.

Barbie Mania

Joining the fever created by the “Barbie” movie, a number of brands collaborated with Mattel on Barbie-themed collections, which made the fashion and beauty industry a lot more pink. Vans, Fossil, Boohoo, Pacsun, Crocs, Gap and Aldo are among the multitude of brands that have released Barbie collections.

Related Articles

Zara was one of the latest retailers to announce a Barbie collection, which featured home decor, accessories and even Ken-printed boxers. In alignment with the collection, the clothing chain also hosted a series of “Barbiefied” pop-ups at its New York City and Paris store locations, with life-size fitting rooms and vending machines that rotate products.

Source: wwd.com

Apache is functioning normally

Million-dollar home sales in the Golden State slipped to their lowest level in five years, according to real estate information provider DataQuick.

A total of 24,436 homes sold for a million dollars or more in California last year, a 42.5 percent decline from the 42,506 sold in 2007.

It’s the lowest total since 2003 when 20,595 million-dollar homes were sold, and less than half the 50,010 sold in 2006 when real estate was booming.

“Discretionary spending in the housing market has pretty much been on hold the past fifteen months,” said John Walsh, DataQuick president, in a release.

“The core of last year’s distress was clearly in affordable areas that had a lot of turnover in 2005 and 2006. That distress could migrate up the price ladder if this recession proves nasty for high-income households.”

A big problem was been financing jumbo loans; the number of home purchase mortgages below the old conforming limit of $417,000 increased by 21 percent last year, while the number above decreased a whopping 51 percent.

“A lot of home sales in the upper half of the market have been on hold for months, waiting for financing,” Walsh added.

That led to nearly a quarter of buyers paying with cash, up from 14 percent in 2007, with those who chose to finance coming in with a median 30 percent payment.

Total California home sales at all price levels increased 2.5 percent last year to 393,703 units, up from 383,748 in 2007.

Of the sub-one million dollar home sales, at least 2,052 previously sold for more than $1 million.

Interestingly, the 608 sales for more than $5 million last year was a record high, up 7.6 percent from 565 similar sales in 2007.

Roughly three percent of the 8.51 million homes in California are valued at more than $1 million by county assessor offices.

Source: thetruthaboutmortgage.com

Apache is functioning normally

The fight to keep the FHA affordable to would-be home buyers is heating up.

Despite some intense efforts to get the FHA to bring down its annual mortgage insurance premiums to pre-crisis levels, it probably won’t happen this year. Or even next year…

And that’s straight from the horse’s mouth. Yesterday, FHA Commissioner Carol Galante did a little Q&A session with the Washington Post, and she pretty much shut down the idea of lowering premiums in the near future.

Earlier this month, the National Association of Realtors, along with other industry trade groups, sent letters to HUD urging it to lower the annual MIP on FHA loans to improve affordability for underserved borrowers, namely first-time buyers.

But those pleas appear to have fallen on deaf ears, as Galante told the WaPo it was “not the time to do a wholesale rollback of the premiums.”

Definitely Won’t Raise FHA Premiums

However, she did add that the agency definitely wouldn’t raise premiums any further. Sigh of relief.

For the record, they’ve been raised five times since 2010, nearly tripling from 0.55% to 1.35% today.

Clearly that has caused a lot of uproar, especially with pro-housing groups like NAR and the MBA, but apparently HUD is putting its foot down. But not premiums…

The reason? The FHA’s financial condition is still tenuous at best. Additionally, they last raised the annual MIP about a year ago, so to lower it after just 12 months would seem a bit silly and shortsighted, not to mention weak.

Galante also claimed the FHA’s reduced market share today versus several years ago may be more about the overall drop in loan origination volume (and higher mortgage rates), and not so much the higher premiums.

Per the article, FHA loans were used for about half of home purchases in 2008 and only around 20% today.

Asked what type of market share she’d like the FHA to have, she didn’t throw out a number but said somewhere between irrelevant and dominant, to paraphrase aggressively.

New Legislation Would Lower Upfront Premium for First-Time Buyers

While NAR and the MBA work on the annual premiums, Congresswoman Joyce Beatty (OH-03) is working on getting the FHA’s upfront mortgage insurance premium reduced.

On April 10th, she and a number of other legislators introduced the so-called “Housing Financial Literacy Act of 2014” (H.R. 4462).

At the moment, the upfront MIP is a pricey 1.75% of the loan amount, up from 1% back in early 2012.

The bill would reduce it to 1.50% for first-time home buyers who complete a HUD-certified housing counseling course that improves their financial acumen.

She points to studies that show pre-purchase housing counseling reduces the risk of mortgage default by one-third. So apparently it would more than pay for itself.  And because it targets first-time home buyers, HUD shouldn’t take issue with it.

Interestingly, HUD proposed a similar program last summer referred to as HAWK, or Homeowners Armed With Knowledge.

The pilot program would reduce insurance premiums for homeowners who take part in housing counseling prior to receiving an FHA loan, a move that could bolster the agency’s MMI Fund and improve the well-being of FHA borrowers.

When HAWK might actually roll out remains unclear.  In the mean time, renters might need to save more money or ask for a gift if they want to realize the dream of homeownership.

Source: thetruthaboutmortgage.com

Apache is functioning normally

When it comes to purchasing a new property, homebuyers are often on the lookout for attractive incentives that can enhance their investment. Builders strive to entice potential buyers with various incentives. The most common incentives offered are capped development levies, assignment discounts, and the right to lease during occupancy. Let’s delve into these incentives and understand their benefits for homebuyers.

Capped development levies are one of the most sought-after incentives offered by builders. Development levies are charges imposed by municipal authorities to fund infrastructure projects in the area. However, these levies can significantly impact the final purchase price of a property. To alleviate this burden, some builders opt to cap the development levies, ensuring that homebuyers will not be subjected to any additional increases beyond a predetermined amount.

Enjoying our content? Subscribe to our free weekly newsletter to get real estate market insights, news, and reports straight to your inbox.

By capping the development levies, builders provide homebuyers with cost certainty and protection against escalating fees. This incentive proves advantageous for buyers, allowing them to budget more effectively and avoid unexpected financial strain. Moreover, capped development levies can result in substantial savings, making the overall investment more attractive.

Assignment refers to the transfer of the purchase agreement from the original buyer to a new one before the property’s completion. This incentive provides flexibility for buyers who may have changed their plans or circumstances since entering into the agreement. It is also attractive to investors who purchase pre-construction homes with the sole purpose of assigning it once the value of the property increases.  

The right to lease is an appealing incentive offered by builders, particularly for investors looking to generate rental income. This provision permits buyers to lease out their property before they take occupancy. It allows them to start earning rental income immediately upon completion, mitigating any holding costs or mortgage payments.

For investors, the right to lease provides a lucrative opportunity to secure tenants in advance and establish a rental stream. Additionally, it grants flexibility by allowing investors to choose whether to reside in the property themselves or continue renting it out for long-term gains.

Unsure of whether you should go the resale or pre-construction route? Give us a call today to speak to a real estate agent that can help you make the right decision.

Looking to move this summer?

Contact us today to speak to a Realtor in your area

Source: zoocasa.com

Apache is functioning normally

Options traders buy calls when they believe prices will increase and purchase puts when they think prices will drop. But is there a way to profit if traders believe either that the price will remain stable, or the price will be unstable but the direction of movement is unclear?

Enter the butterfly spread strategy.

Butterfly spreads, depending on how they’re constructed, allow you to profit from either price stability or instability. In addition, they have the advantage of allowing traders to know their maximum gains and losses over the life of the trade.

Before engaging with a butterfly options trade, it’s best to learn how the myriad parts of a butterfly trading strategy works — and how to make that strategy work for you.

Butterfly Spread Defined

The butterfly spread — so named because of its “two wings on a butterfly” structure to the payoff graphs — is a go-to strategy for seasoned options investors looking for leverage while limiting downside risk.

Butterfly spreads are an advanced trading strategy, but if you’re a beginner there are other options strategies for you to explore.

Recommended: 10 Options Trading Strategies for Beginners

A butterfly options spread is an investment strategy that aims to profit from changes in volatility, take advantage of time decay, or both.

The object is to garner big trading returns on an asset whose price remains close to the strike price (when trading volatility is low) by the time the options contract expires. Butterfly options trades can be complicated in nature, but unlike many derivative trading strategies, butterfly trading strategies offer limited (i.e., known) gains and losses.

That “limit factor” derives from bull and bear spreads that in combination provide a price neutral strategy that keeps costs low, limits losses, and hopefully generates outsized returns.

Even so, butterfly options spreads do come with investment risk. Such trades should not be deployed by an investor unless the price of the underlying asset (such as a stock, bond, mutual fund, or exchange traded fund) remains fairly stable over the option contract’s entire time period.

💡 Quick Tip: If you’re an experienced investor and bullish about a stock, buying options online (rather than the stock itself) can allow you to take the same position, with less cash outlay. It is possible to lose money trading options, if the price moves against you.

How Does a Butterfly Spread Work?

Like any options trade, a butterfly spread trade is based upon the option’s underlying asset. The option contract itself spells out how the trade is structured.

Typically, when a trader looks at calls and puts in options they are concerned about the following key elements:

•   Whether the trader is interested in call or put options.

•   Will the trader be buying or selling/writing options.

•   The strike price

•   The options premium

•   The expiration date (i.e., when the options contract ends).

With a butterfly spread, the contract owner typically forges a bullish and bearish price spread. The contract represents a neutral trading strategy with a quartet of options contracts that hold the same expiration date, but have three different strike prices (one option at a low strike price, two at-the-money options, and a fourth option at a higher strike price).

Recommended: What Are Stock Spreads?

The options at the higher and lower strike prices are equidistant from the at-the-money contract price — this represents the proper balance of the two wings attached to the butterfly’s body (i.e., the neutral options contract).

For example, if the asset is trading at $50, the higher and lower strike prices should be equally distant from the $50 strike price — at $40 and $60, for instance — each “wing” of the butterfly trading strategy would be $10 away from the current $50 asset price.

Finally, user-friendly options trading is here.*

Trade options with SoFi Invest on an easy-to-use, intuitively designed online platform.

Butterfly Spread Example

Here’s an example of a long call butterfly spread, one of the most common forms of butterfly spread trading.

An investor decides to invest in XYZ stock where prices are stable and five-year pricing fluctuations are minimal.

XYZ is currently trading at $55 and the investor expects shares to remain stable, but doesn’t want to take on too much risk.

Here’s the butterfly spread options trade that takes full advantage of the situation but limits any downside losses.

The investor:

•   Buys an out-of-the money XYZ call expiring in two months with a strike price of $45

•   Sells two at-the-money XYZ calls with strike prices of $55 and the same expiration as above

•   Buys an out-of-the money XYZ call with a strike price of $65 also with the same expiration

Recommended: Guided to the Moneyness of Options

Note the equal balance between the three trades – each strike price is $10 from the $55 strike price on the two sold calls.

In total, the investor has purchased a pair of XYZ calls and has sold a pair of XYZ calls for the following amounts:

•   Purchase of one out-of-the-money XYZ call at $45 for $700.

•   Purchase one out-of-the-money XYZ call at $65 for $100.

•   Sell two at-the-money XYZ calls at $55, gaining $600 on the sale.

At the end of the transaction, the investor spends a net total of $200 ($700 plus $100 minus $600 equals $200).

If XYZ prices remain stable and close at $55 on the expiration date, the investor will achieve the maximum profit on the trade of $800.

Maximum Profit = Price of $45 call – Price of $55 calls + Price of $65 calls – Initial investment

Calls that are out of the money expire worthless, therefore:

Maximum Profit = ($10 – $0 + $0) * 100 shares per option – $200 = $800

If the price of XYZ moves significantly (for example, it rises above $65 or falls below $45, the butterfly spread yields the maximum loss of the $200 spent to initiate the trade.

Maximum Loss = Net Premium Paid = $200

Finally the butterfly spread has two break even points:

Lower Break Even point = Strike of Lower Strike Long Call + Net Premium Paid
Higher Break Even point = Strike of Higher Strike Long Call – Net Premium Paid

Lower Break Even point = $45 + $2 = $47
Higher Break Even point = $65 – $2 = $63

Should XYZ settle between $47 and $63 per share at expiration, the trade will be profitable. How profitable is summarized in the graph below.

Note: The calculations and graph above disregard transaction costs, but due to the complexity of the butterfly spread these can add up. The smart trader considers these costs when initiating and exiting trades.

Types of Butterfly Spreads

Investors looking to engage with butterfly spread trading have several types of spreads to consider.

Long Call Butterfly Spread

This type of butterfly spread has a trader purchase three positions; an out-of-the-money call option at a low strike price, the sale of two at-the-money call options, and another purchase of an out-of-the-money call option with a higher strike price as in the example above.

An investor may earn the maximum profit if the underlying asset’s price remains stable and is the same as the written calls on the expiration date.

The maximum loss is represented by the trade entry cost, with trading fees added into the final amount.

Short Call Butterfly Spread

A short call butterfly spread is the inverse of a long call butterfly spread and is initiated when an investor sells a single out-of-the money call option with a low strike price, purchases two at-the-money call options, and sells an out-of-the money call option that has a higher strike price.

The maximum profit is the same as the initial premium collected minus the cost of trading fees but can be achieved two ways. If the stock moves substantially higher or if the price moves substantially lower. In this case, the trader expects the stock to move significantly but doesn’t know in which direction. One market scenario might be before an earnings call where the market’s expectations of results are unclear.

The maximum loss on the trade is equal to the difference between the lowest strike price and the center strike prices less the credit received on trade initiation. This will occur if the price remains stable.

Iron Butterfly Spread

An iron butterfly spread is a four-position transaction constructed when an investor buys an out-of-the-money put option that has a lower strike price, sells a single at-of-the money put option, sells a single at-of-the money call option, and buys an out-of-the money call option that has a higher strike price.

Maximum profit is achieved when the underlying asset is equal to the middle option strike price, along with the premiums provided via the iron butterfly spread trading strategy. The maximum loss is represented by the strike differential of the middle strike price minus the lower strike price less any premiums earned.

Pros and Cons of Using a Butterfly Spread

All options trades have advantages and disadvantages and butterfly spreads are no exception.

Pros of Butterfly Spreads

While profit is always the primary hoped for benefit of engaging in a trade, butterfly spreads do offer more.

Flexibility. Butterfly spread options allow the trader to construct trades to take advantage of varying scenarios.

Risk is limited. With a butterfly options trade, the maximum risk is limited and cannot exceed the parameters laid out upon initiation of the trade. Many options strategies can expose traders to unlimited losses.

Few surprises. With a butterfly options trade, a trader goes in knowing the maximum profit and loss linked to the trade.

Cons of Butterfly Spreads

Like any securities trade (especially with options trading), risks are a reality with butterfly spread trading. These potential downsides should be considered before engaging in any butterfly spread trades.

Complexity. There are scenarios where butterfly spreads are built with three or four different positions. This complexity comes with added transaction costs which can eat into potential profits. Butterfly spread options trading is complicated and not recommended for new investors.

Limited Reward. Butterfly options partner limited risk with limited reward. Hitting a home run with an option that allows an unlimited payoff is not in the cards here.

Assignment Risk. Options can be assigned at any time prior to expiration if an option is in the money. With so many moving parts the risk of assignment is real, with the other disadvantage that the butterfly spread collapses if any leg is assigned. This is manageable, but is a real risk.

Butterfly Spread Pros Butterfly Spread Cons
Butterfly spreads are very flexible ways to profit from volatility or the lack thereof Complexity comes with higher transaction costs
Limited Risk Limited Reward
Few surprises Assignment Risk

Use Your Options Trading Knowledge Today!

Investors looking to leverage butterfly spread options should know the trading strategy is complex and not without risk.

That said, a butterfly spread options strategy can yield significant profits if the expected scenario develops — and if the investor commits to the narrow options trading strategy that butterfly options trading demands.

Qualified investors who are ready to try their hand at options trading, despite the risks involved, might consider checking out SoFi’s options trading platform. The platform’s user-friendly design allows investors to trade through the mobile app or web platform, and get important metrics like breakeven percentage, maximum profit/loss, and more with the click of a button.

Plus, SoFi offers educational resources — including a step-by-step in-app guide — to help you learn more about options trading. Trading options involves high-risk strategies, and should be undertaken by experienced investors.

With SoFi, user-friendly options trading is finally here.

Photo credit: iStock/Kateryna Medetbayeva

SoFi Invest®
The information provided is not meant to provide investment or financial advice. Also, past performance is no guarantee of future results.
Investment decisions should be based on an individual’s specific financial needs, goals, and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC registered investment advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).

2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.

3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.

For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or prequalification for any loan product offered by SoFi Bank, N.A.

Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes.
SOIN1021448

Source: sofi.com