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In options trading, the butterfly spread strategy is a neutral approach that profits from movement in either direction in the market. It’s structured to combine both bull and bear spreads, and comes with controlled risks and profit.
By default, the butterfly spread has four positions (either four calls or puts) and three strike prices with the same expiration date: One is at-the-money (ATM), while the other two are below and above the ATM strike price, respectively. For example, if an ETH option has a $1,150 ATM strike price, the lower strike price would be $1,150 − $150 = $1,000, and the upper strike price would be $1,150 + $150 = $1,300.
Different types of butterfly spreads arise from different combinations of put and call options, which determine whether the spread profits from low — or just enough — volatility.