Butterfly Spread

The butterfly strategy is one of the most robust and versatile option selling techniques available.
In a lazy, quiet market condition there is very little - if anything - to do to manage these positions - other than watch your 0 day risk graph line rise up as your account grows - then close it out [...]

Non directional trading enthusiasts will many times use the butterfly option strategy as a way take advantage of a stock or index or ETF that is caught in a chart range - or an underlying whose options provide good premiums but doesn’t gyrate wildly around.
Because the short strikes of these butterfly spread positions are usually [...]

Butterfly Spread Trades can be composed of all call options, all put options, or both call and put options.
Regardless of how they are constructed - for the most part they appear the same in a trading platform risk graph pay off diagram window - and also for the most part they perform the same while [...]

March 2010 Expiration
Our Butterfly Spread Trade this month did beautifully. Opened this trade on 2-17-10. Closed it on 2-25-10 for a profit of just over 10% in 8 days.

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Technorati Tags: Butterfly Option, Butterfly Spread, Credit Spread, [...]

photo credit: dno1967
A butterfly spread is an options spread trade that takes advantage of the fact that options are decaying assets.
Butterfly spread traders SELL the options that have the MOST time premium - or the options that the MOST ‘fake’ or ‘unreal’ value.
As long as the underlying they are trading stays within a range [...]

photo credit: dno1967
Traditionally traders might consider the Butterfly Spread to be a ‘neutral’ strategy - one that is used when the trader believes that the underlying being used will not move much and will remain in a relatively narrow range.
And while of course butterfly spreads do work - and work wonderfully - in such [...]

photo credit: timlewisnm
When trying to understand a more complex options strategy, many times I find it easier to ‘reverse engineer’ the position, break it apart into pieces -understand what exactly those pieces are that make up the trade, then put them all back together again.
For example, an alternate way to look at the Iron [...]

photo credit: dev null
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 [...]

photo credit: Anne Toal
The Iron Butterfly Spread is actually an Iron Condor. Even when in my option trading software platform - when selecting from their ‘trading strategies’ to place - when wanting to select an Iron Butterfly - it’s not one of their options. You must select ‘Iron Condor’ instead.
However, the payoff diagram of [...]

photo credit: centralasian
I’ve spent a ton of money of various option trading courses over the years. Some good - some bad - but what I’ve found surprising is how almost ALL of them deliver only text book type information on ‘what is an option’ or ‘what is a butterfly spread’ or ‘what do the [...]