Butterfly Spread

Description

Buying one low strike, selling two middle strikes, and buying one high strike.

Trading Logic

Profits if the stock price stays near the middle strike.

Practical Example

Stock at $100. Buy $90C, sell two $100C, buy $110C.

P/L Curve

Chart Description
  • X-Axis: Stock price at expiration
  • Y-Axis: Expected P/L ($)
  • Green area: Profit; Red area: Loss