Butterfly Option Spreads
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Butterfly Option Spreads are one of the most ‘robust’ option trades of the ‘main’ option spread income strategies. In other words, the butterfly spread can withstand more ‘abuse’ from a volatile market than say the iron condor, diagonal, or calendar, - and still come out smelling like a rose.
One reason for this has to do with the amount of premium brought in at the start of the trade. Because in most cases the short strikes of the buttterfly strategy are sold ATM (at the money) an extremely large amount of ‘premium’ is brought into the account - which can help to fund future trading tweaks and adjust ments if / when neccesary.
Also - if you look at the risk graph - or payout diagram - of the butterfly spread, you can see that the 0 day line (the line representation on the graph which represents what the current value of the position is) is really forgiving in either direction. The slope of this line on the graph is much flatter over much longer of an area than say the iron condor.
In a wild market, I’ve found the butterfly spread much more tolerable and also easier to adjust - again, partially due to the fact that I have so much premium to work with in ‘purchaing’ additional insurance - where, say with the higher probability iron condors, there really is only so much premium to work with while adjusting - and a trader needs to much more careful and precise while managing.
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