InvestorQ : What is a Butterfly strategy and how can it help in a directionless market?
swati Bakhda made post

What is a Butterfly strategy and how can it help in a directionless market?

Answer
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Dia Deshpande answered.
2 years ago


As the very name suggests a Butterfly strategy combines selling 2 ATM options and simultaneously buys 1 ITM option and 1 OTM option. The net result is a small debit which is the maximum cost of the butterfly spread strategy. Remember that there are 4 legs to a butterfly strategy and 4 legs at the time of closure of the strategy. There is transaction cost and statutory cost implications on all these 8 legs and that needs to be factored into your calculations.