butterfly spread

Butterfly spread

Applies to derivative products. Complex option strategy that involves buying a call option with a relatively low strike price; buying a call option with a relatively high strike price; and selling two call options with an intermediate strike price. Essentially, this is a bear call spread stacked on top of a bull call spread. One can also do this with puts. The investor buys a put with a low strike, buys a put at high strike and sells two puts at intermediate strike price. The payoff diagram resembles the shape of a butterfly.

Butterfly Spread

An option strategy wherein one sells two options with the same strike price and buys two other options, one with a low strike and one with a high strike. The butterfly spread limits both the risk and the profit potential; it is profitable only if the price of the underlying asset remains in a relatively narrow range. One may use a butterfly spread on both calls and puts, but not on both mixed together. See also: bull spread, bear spread.

butterfly spread

A combination of two long and two short call options, all with the same expiration date. The two short options carry the same strike price, which is sandwiched between a higher and a lower strike price on the long options. A hypothetical example of a butterfly spread would be to sell two April GM $60 and buy an April GM $50 and an April GM $70. The butterfly spread is designed to be profitable if the price of the underlying asset remains within a narrow trading range.
References in periodicals archive ?
When her butterfly at school seems scared to fly away, she shares the story of how she finds courage when she is scared, helping the butterfly spread its wings and take flight for the journey ahead.
The butterfly spread measuring yield differences between two-, five- and seven-year Treasury notes was 31.
In this paper we present a spectral method based on the improved Lagrange formula to compute European, digital, and butterfly spread options.
And so saying, the butterfly spread its glorious wings, took flight and became one with the sky above.
By that stage, I had also developed the lupus rash, which looked like a big red butterfly spread across my cheek.
We continue to provide new technology that will create value-added benefits for our customers, such as the implied butterfly spread functionality we announced this week for trading CME Eurodollars.
futures exchange, announced today that it has launched new implied butterfly spread trading functionality for CME Eurodollars on Globex(R), the exchange's electronic trading platform.
The release of implied butterfly spread functionality for Eurodollars on GLOBEX, previously scheduled for Sunday, May 16, 2004 (trade date May 17), is now scheduled for Sunday, September 5, 2004 (trade date September 6) to allow for the above upgrade and to provide sufficient time for CME and customer testing and deployment.
The new butterfly spread functionality will be similar to that which currently exists for GLOBEX Eurodollar calendar trades and will allow Eurodollars on GLOBEX users to efficiently establish and liquidate butterfly positions.
CINCINNATI -- In Wednesday's edition of Advanced Options, we analyzed the long call butterfly spread, which allows accurate option veterans to profit from a stock's apathetic price action.
This column will examine a potential long butterfly spread, the pros and cons of putting on a long butterfly spread, and the profit and loss potential of this position.
Just as the bird reached for the snack, the computer would flash an image of either an owl or a butterfly behind the mealworm as suddenly as an attacked butterfly spreads its startling wings.