Iron butterfly

 

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Iron butterfly

An option strategy with limited risk and limited profit potential that involves both a long (or short) straddle, and a short (or long) combination. An iron butterfly contains four options as is an equivalent strategy to a regular butterfly spread which contains only three options. Example (short iron butterfly): long 1 XYZ May 60 call and 1 May 60 put, and short 1 XYZ May 65 call and short 1 XYZ May 55 put.



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Butterfly

Butterfly

In the context of equities, a firm with two divisions may split into two companies and issue original shareholders two shares (one in each of the new companies) for every old share they have.


Butterfly spread

Butterfly spread

Applies to derivative products. Complex option strategy that involves selling two calls and buying two calls on the same or different markets, with several maturity dates. One of the options has a higher exercise price and the other has a lower exercise price than the other two options. The payoff diagram resembles the shape of a butterfly.


Butterfly

Butterfly

An option strategy which involves, in one single transaction, the simultaneous purchase (sale) of a call (put) at one exercise price, the sale (purchase) of two calls (puts) at a higher exercise price and the purchase (sale) of a call (put) at an equally higher exercise price.


Butterfly shift

Butterfly shift

A nonparallel shift in the yield curve involving the height of the curve.




 
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