butterfly spread

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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.
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31 in the wake of results released yesterday and one investor sells 5K Apr 100 calls at $1 to buy 5K Apr 80 - 85 - 90 put butterfly spreads for $1.
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.
Butterfly spreads are so named because the respective "sizes" of the positions invoke the image of a butterfly.
When a comma butterfly spreads its wings, the insect is easy to see (above).
TD AMERITRADE's new, single-click strategy choices include butterfly spreads, calendars, diagonals, iron condors, straddles and even customized spreads.