Butterfly Spread
An option strategy combining one long lower-strike option, two short middle-strike options, and one long higher-strike option, all at the same expiration. The structure is delta-neutral at entry and profits if the underlying lands near the middle strike at expiration (where the short legs decay to zero while the long legs retain value). Butterflies express a view that realized volatility will be LOW -- the underlying will stay near a specific strike. Maximum loss is the net debit paid; maximum gain is bounded by the strike spreads. Common in calm-market income strategies and bounded-range bets.
Lessons that use this term
Related terms
American Option · Asian Option · Barrier Option · Basket Option · Calendar Spread · Cash-Secured Put
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