Short butterfly spread

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Short butterfly is the name of an advanced, neutral-outlook, options trading strategy that involves buying and holding four different options at three different strike prices. The short butterfly is a neutral strategy like the Long Butterfly Spread but bullish on volatility. It is a limited profit, limited risk options trading strategy and it can be constructed using calls or puts.

Using calls, the short butterfly can be constructed by writing one lower striking call, buying two at-the-money calls and writing another higher striking call. A net credit is received upon entering this spread. Hence, the short butterfly is also a credit spread.

[edit] References

• McMillan, Lawrence G. (2002). Options as a Strategic Investment, 4th ed., New York : New York Institute of Finance. ISBN 0-7352-0197-8. 

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