What is butterfly spread strategy?

Some of them are: long call, short call, long put, short put, iron butterfly, and reverse iron butterfly. The butterfly spread strategy involves long and short positions in call or put options at different strike prices. All options are put for put butterfly and all options are call for call butterfly.

What is a short call butterfly spread?

This strategy is used when the trader believes the underlying asset’s price will fall. To create a short call butterfly spread, the trader would sell one call option with a strike price of $100, buy two call options with a strike price of $105 and sell one call option with a strike price of $110.

Can you trade a butterfly with a call spread?

Butterflies can be traded with either calls or puts, it doesn’t really matter. You can also trade an iron butterfly, which uses BOTH calls and puts. An iron butterfly is basically a combination of a bear call spread and a bull puts spread.

How do you create an iron butterfly spread?

The iron butterfly spread is created by buying an out-of-the-money put option with a lower strike price, writing an at-the-money put option, writing an at-the-money call option, and buying an out-of-the-money call option with a higher strike price. The result is a trade with a net credit that's best suited for lower volatility scenarios.