Butterfly Spread With Puts
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photo credit: Alexandre Hamada Possi
There are a number of different ways a trader can construct a Butterfly Spread.
The traditional Butterfly Spread is made up of either all calls or all puts. The short strikes are sold At The Money – while the long calls – or ‘wings’ – are bought an equal distance away from the short strikes on either side.
For example, a Butterfly Spread with puts might look something like this:
Purchase 1 60 put
Sell 2 65 puts
Purchase 1 70 put
An example of a call Butterfly Spread might look something like this:
Purchase 1 60 call
Sell 2 65 calls
Purchase 1 70 call
An Iron Butterfly is a butterfly spread made up of both calls and puts. Think of an Iron Butterfly as an Iron Condor – only with the short strikes which are sold at the money touching each other (or being the same strike). For example:
Purchase 1 60 put
Sell 1 65 put
Sell 1 65 call
Purchase 1 70 call
Also see http://www.ironcondor.net
