A Call Butterfly Spread is a strategy that combines multiple calls at different strikes.
It's designed to profit from low volatility and the underlying finishing near a target price at expiration. It’s a limited-risk, limited-reward strategy ideal for range-bound markets.
How It Works
Buy 1 lower strike call
Sell 2 middle strike calls
Buy 1 higher strike call
All options share the same expiration date.
Profit and Loss Profile
Maximum Profit: Achieved if the underlying finishes exactly at the middle strike at expiration; profit equals the peak of the butterfly payoff minus net premium.
Maximum Loss: Limited to the net premium paid to establish the butterfly.
Breakeven: Two breakeven points around the middle strike determined by net premium.
Why Traders Use It
To express a neutral, high-conviction view that the price will land near a target at expiry.
For low-cost exposure to a narrow range with strictly limited risk.
Because butterflies provide high probability of small gains when implied volatility is stable or when traders expect limited movement.