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Butterfly Spread Definition | Investopedia
Butterfly Spread Explained | Online Option Trading Guide
In the example above, the difference between the lowest and middle strike prices is , and the net cost of the strategy is , not including commissions. The maximum profit, therefore, is less commissions.
When the underlying stock is expected to have a low volatility, the Iron Butterfly strategy has a higher possibility of generating a limited profit. In case, the volatility increases, the loss is limited. Thus, this is a limited loss, and, limited profit strategy.
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Because you’re selling the two options with strike B, butterflies are a relatively low-cost strategy. So the risk vs. reward can be tempting. However, the odds of hitting the sweet spot are fairly low.
A butterfly is created by combining four options of the same type, either four calls or four puts. There are three strike prices involved in the strategy. Options with higher and lower strike prices are known as the "wings," while a middle strike price is known as the "body."
The benefit to this strategy is that it is one short volatility and also it has a wider range for the price to move around, up or down, before you get into any trouble with the trade.
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Maximum profit for the short butterfly is obtained when the underlying stock price rally pass the higher strike price or drops below the lower strike price at expiration.
Maximum profit for the long butterfly spread is attained when the underlying stock price remains unchanged at expiration. At this price, only the lower striking call expires in the money.
A short iron butterfly option strategy will attain maximum profit when the price of the underlying asset at expiration is equal to the strike price at which the call and put options are sold. The trader will then receive the net credit of entering the trade when the options all expire worthless. 
By selling short two call options at a given strike price, and buying one call option at an upper and lower strike price (often called the wings of the butterfly), an investor is in a position to earn a profit if the underlying asset achieves a certain price point at expiration . A critical step in constructing a proper butterfly spread is that the wings of the butterfly are equidistant from the middle strike price. Thus, if an investor short sells two options on an underlying asset at a strike price of $60, the upper and lower options should have strike prices equal dollar amounts above and below $60. At $55 and $65, for example, as these strikes are both $5 away from $60.
Here is how the risk reward curve for this spread looks like. As you will notice, if someone can accurately predict underlying move, a butterfly spread can be very rewarding (In the below example, the SPY $117 call butterfly can yield over +400% if SPY is at $117 by April Expiration. Why does Butterfly spread make so much money if the underlying remains at short strike by expiration? It’s because At the Money (ATM) option has the highest time premium (aka extrinsic value) and you are selling 2 of those for each butterfly thus making it theta positive.
Since the butterfly options strategy is a complex one and contains 3 "legs" (options with 3 different strike), its P/L graph is quite complicated and changes considerably as time moves forward to the expiration.
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