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
Best Efforts Underwriting/Offering
A best efforts underwriting is an arrangement where the underwriter agrees to market and sell...
Issuer
An issuer is the company that sells its shares to the public for the first...
Dividend Payout Ratio
The Dividend Payout Ratio (DPR) is a financial metric that shows the proportion of a...
Long-Term Capital Gain Tax
Long-term capital gain tax is the tax levied on profits from the sale of shares...
Long-Term Stocks
Long-term stocks refer to shares that investors intend to hold for an extended period, typically...
Accrued Interest
Accrued interest is the interest that accumulates during the current accounting period but remains unpaid...
