Butterfly Spread

An option strategy, combining both bull and bear spreads, built on four trades at one expiration date and three different strike prices. One of the options has a higher exercise price and the other has a lower exercise price than the remaining two options. The three different prices create a range of prices the strategy can profit from. The basic concept is for the trader to sell two option contracts at the middle strike price and buy one option contract at a lower strike price and one option contract at a higher strike price. If the security is stable, the the investor will profit.