How do I get the expected profit for the short butterfly?

Options & Futures
1

Course Name: Systematic Options Trading, Section No: 12, Unit No: 6, Unit type: Notebook

In my opinion the notebook is missing a final step. How do I get the expected profit for the short_butterfly that is setup earlier in the notebook?

Is this really done by using

exp_profit_lognormal = expected_pnl_lognormal.sum()

Can you please elaborate on this?

Thanks

2

Hi,

In simple terms, expected profit is a combination of probability of profit * the payoff. The notebook illustrates how you can calculate the expected profit for a given day, combining multiple options with different strike prices, and their probability of profit.

You can calculate the expected profit in two ways
Expected Profit (Empirical Distribution)
Expected Profit (Lognormal Distribution)

But you should understand that this was for one day, and we use this as one of the conditions for taking a trade, or rather, set up a short butterfly or not on a day. This is shown in the section 17, unit 10 of the notebook.

Hope this helps.