Long Butterfly

Low cost, high profits if the price stays near the strike price.

The Long Butterfly is a strategy for betting on low volatility — that the asset’s price will not rise or fall significantly during the holding period.

When buying a Long Butterfly, the reasoning is:

“I don’t care what the price will be, but if it doesn’t change much from current levels in either direction during the period of holding the Long Butterfly, I win.”

This strategy is optimal when the price remains stable. Its profit zone is the opposite of a Straddle: you profit if the price does not move, and lose if volatility increases compared to the market price at the time of purchase.

With a Long Butterfly, the premiums received for selling ATM options are higher compared to the total premiums for the OTM options you buy in the Long Condor.

Buying one Long Butterfly is equal to selling an ATM Call and an ATM Put while simultaneously buying an OTM Call and an OTM Put (two ranges available — Narrow and Wide).

The Long Butterfly is an inverse strategy, which means it involves selling (writing) options and cannot be exercised before expiry.