Trading Strategies
What is Butterfly Spread?
A three-strike strategy with limited risk that profits at a specific price.
📖 Complete Definition
A butterfly spread uses three strike prices: buying one option at the lowest strike, selling two at the middle strike, and buying one at the highest strike. Maximum profit occurs if the stock closes exactly at the middle strike at expiration. Butterflies are low-cost, limited-risk strategies used when targeting a specific price.
Examples
- →Buy $95 call, sell 2x $100 calls, buy $105 call for $1 debit
- →Max profit: $4 if stock closes exactly at $100 at expiration
❓ Frequently Asked Questions
When should I use a butterfly spread?
Use butterflies when you have a specific price target and expect low volatility. They're low cost with high reward potential at the target but lose value quickly if the stock moves away.
🔗 Related Terms
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