Strategy Overview
Medium RiskAdvancedNeutral
A butterfly spread is a neutral strategy that profits when the stock expires near a specific price. It combines a bull spread and bear spread with the same middle strike.
Max Profit
Width of spread - premium paid
Max Loss
Premium paid
Breakeven
Middle strike +/- max profit
Probability
~25% win rate
hist. est.
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Example Setup Calculator
$
Debit Paid
$200
Max Profit
$300
Max Loss
$200
Breakeven
$102.00
Strategy Components
BUY ITM CALL
Buy 1 lower strike call
SELL ATM CALL
Sell 2 middle strike calls
BUY OTM CALL
Buy 1 higher strike call
When to Use
- You have a specific price target
- You expect low volatility
- You want high reward-to-risk ratio
- Time to expiration is short
Best Market Conditions
- Price target clearly defined
- Low volatility expected
- Consolidation pattern
Best Practices
- Works best near expiration
- Place center strike at target price
- Low probability but high reward
- Consider as lottery ticket positions
Ready to Trade?
Review Butterfly Spread and practice it in paper trading with the school workflow.
Paper Trading