Butterfly Spread
A butterfly spread is an options trading strategy that merges bull and bear spreads to secure a modest profit. It involves four positions across four options contracts, all sharing the same expiration date but differing in strike prices. Typically, this setup includes buying one lower-strike option, selling two middle-strike options, and buying one higher-strike option (or vice versa), creating a profit zone with limited risk. The strategy aims to capitalize on minimal price movement, offering a defined payoff while capping potential losses, making it appealing for traders expecting low volatility.
Related Terms
Adjusted Closing Price
The adjusted closing price of a stock reflects modifications made to account for corporate actions—such...
Forward Market
The forward market is a marketplace where forward contracts are traded. A forward contract is...
Derivatives Trading
Derivatives trading involves buying and selling contracts like futures, options, swaps, and forwards. These contracts...
Commodity Options
A commodity option is a type of derivative contract that gives the buyer or seller...
Equity Trading
Equity trading involves buying and selling equity shares in secondary markets, via stock exchanges. Traders...
Beta Coefficient
The Beta coefficient measures a stock’s volatility relative to the market, aiding investors in assessing...
