Butterfly Spreads¶

Butterfly spreads are three-leg strategies designed to profit when the underlying stays near a specific price. They offer defined risk and defined reward with neutral market outlooks.

Long Call Butterfly¶

Description¶

Profits when the underlying stays at the middle strike at expiration.

Composition: - Long 1 call at lower strike (wing) - Short 2 calls at middle strike (body) - Long 1 call at upper strike (wing)

Example¶

import optopsy as op
results = op.long_call_butterfly(data, max_entry_dte=45, exit_dte=21)

Short Call Butterfly¶

Description¶

Profits when the underlying moves away from the middle strike in either direction.

Composition: - Short 1 call at lower strike - Long 2 calls at middle strike - Short 1 call at upper strike

Example¶

results = op.short_call_butterfly(data, max_entry_dte=30, exit_dte=7)

Long Put Butterfly¶

Description¶

Similar to long call butterfly but using puts. Profits at middle strike.

Composition: - Long 1 put at lower strike (wing) - Short 2 puts at middle strike (body) - Long 1 put at upper strike (wing)

Example¶

results = op.long_put_butterfly(data, max_entry_dte=45, exit_dte=21)

Short Put Butterfly¶

Description¶

Profits when the underlying moves significantly away from the middle strike.

Composition: - Short 1 put at lower strike - Long 2 puts at middle strike - Short 1 put at upper strike

Example¶

results = op.short_put_butterfly(data, max_entry_dte=30, exit_dte=7)

Key Characteristics¶

Equal Wing Width: Wings are equidistant from the body
Low Cost: Often entered for small debit or even credit
Defined Risk: Maximum loss is limited to debit paid
High Precision: Profits in narrow range around middle strike