Published On: Mon, Apr 8th, 2013

Butterfly Strategy

An option strategy utilizing both bear and bull spreads and this option creates a neutral effect.

By using all four option contracts, under the same expiration but three different strike prices, an investor creates a range of prices to profit from.  First, the investor sells two option contracts at the middle strike price.  Then he/she purchases one option contract a lower strike price and the final option at a higher strike price, thus covering all highs/lows.  Butterfly spreads can use both puts and calls.  Risk is limited, so the only loss would be the initial investment.

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About the Author

- Marcus Holland has been trading the financial markets since 2007 with a particular focus on soft commodities. He graduated in 2004 from the University of Plymouth with a BA (Hons) in Business and Finance.