Butterfly Spread

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This is our 3rd Butterfly Spread we’ve traded this month. Even with this very volatile month because of our new ‘flex’ adjustments we’ve been able to bring in a profit on each one. [...]

When you look at a risk graph of the butterfly spread, you can see that the butterfly payoff is tremendous - especially when compared to other option income spread strategies such as the iron condor, the credit spread, the diagonal, double diagonal, the calendar, double calendar, etc.
Depending on where the wings are placed on these [...]

When you look at a butterfly spread trade’s risk graph you will notice on either side of the graph (this is the triangular graph - the graph that looks like a tepee) the point at which the expiration line crosses through the 0 break even line.
On some software - like the ThinkorSwim.com option trading software [...]

photo credit: 【Ｊ】
A Reverse Butterfly Spread is a butterfly trade that can actually stop time in it’s tracks - then turn it on it’s heels and push it back - causing not only the stock market - but the entire world - to actually start ticking backwards.
This can be useful in a number of [...]

photo credit: gentlebird
When some option traders look at the risk graph of a butterfly - or the butterfly spread payoff diagram - they can’t understand why anyone would want to trade these things.
When you look at a risk graph representation of the butterfly trade - it can look improbable that the underlying will remain [...]

photo credit: BozDoz
The short strikes of the butterfly spread are usually sold ATM (at the money). Strikes that are at the money have the most ‘Time Premium’. Time premium is what will erode away making the butterfly spread trader / option seller money.
Butterfly spreads are 3 legged trades. Again, the short strikes are sold [...]

photo credit: Arbron
If you took the shorts away from a butterfly spread you’d be left with a strangle spread.
I think a lot of butterfly spread traders would love to be able to trade their butterflies without the wings - or the strangle. Having to buy the wings cut into the total profit potential. It [...]

photo credit: Nick.Fisher
While changes in volatility will have an effect on butterfly positions - I’ve found that they are always less severe than they are say in a strategy like the calendar or double calendar spread.
With butterflies (as well as iron condors) a decrease in volatility will help your position - while an increase [...]

photo credit: wka
Having traded a wide variety of different option strategies - if not all of them (at least the ones that I’m aware of) - I’ve found butterfly spread trading to be the most consistent, the most enjoyable, the most manageable, and the most profitable of them all.
The thing with butterflies is that [...]

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 [...]