Butterfly Spread
A three-strike, low-cost, defined-risk bet that the market pins near a single price by expiry.
Definition
Butterfly spread is a three-strike, four-contract options strategy using either all calls or all puts at the same expiry. A standard long butterfly buys one lower-strike option, sells two middle-strike options, and buys one upper-strike option, with the strikes equally spaced. The result is a narrow profit zone around the middle strike, capped profit, and capped loss.
Why it matters
A butterfly is a cheap way to express a pinning view — the belief that the underlying will end up close to a specific price, with low volatility into expiry. Maximum loss is limited to the small net debit paid, and maximum profit occurs if the underlying settles exactly at the middle strike. It is a favourite around expiry day on index options, where prices often gravitate toward heavily traded strikes.
Example
With NIFTY at 24,000 you build a call butterfly: buy the 23,800 call, sell two 24,000 calls, buy the 24,200 call, for a small net debit of, say, 40 points (illustrative). Maximum profit lands if NIFTY expires right at 24,000; profit and loss both flatten out beyond the 23,800 and 24,200 wings.
See it live
Scan adjacent strikes on TradePulse's live option chain to price the three legs of a butterfly.