Butterfly Spread Example
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There a several different types of butterfly spreads traders can put on.
Traditionally there is the call butterfly and the put butterfly. The call butterfly is constructed from ONLY call options - while the put butterfly is constructed from ONLY put options.
An example of a call butterfly would be:
Buy 1 25 Call
Sell 2 30 Calls
Buy 1 35 Call
A put butterfly spread example might be:
Buy 1 60 Put
Sell 2 65 Puts
Buy 1 70 Put
Then there is the Iron Butterfly, with is made up from both calls and puts. One way to think of this butterfly spread is as an Iron Condor with the short strikes of either side being sold at the same strike price - or ‘glued’ together.
An example of an Iron Butterfly could look as follows:
Buy 1 45 Put
Sell 1 50 Put
Sell 1 50 Call
Buy 1 55 Call
Then there is the ‘Skewed Butterfly’ or the Broken Wing Butterfly. In the above examples, the butterfly spreads shown had wings that were bought an equal distance away from the short strikes on either side. In the case of the Skewed or Broken Wing Butterfly this distance is not equal.
An example of a Skewed or Broken Wing Butterfly could looks as follows:
Buy 1 50 Call
Sell 3 55 Calls
Buy 1 65 Call
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