What is a butterfly spread?

A butterfly spread is an options strategy that combines both bull and bear spreads. These are neutral strategies that come with a fixed risk and capped profits and losses. Butterfly spreads pay off the most if the underlying asset doesn't move before the option expires. These spreads use four options and three different strike prices.

What is reverse iron butterfly spread?

The reverse iron butterfly spread is designed to be used when you believe that a security is going to move significantly in price, but you are unsure as to which direction it will move in. This strategy will return a profit regardless of which way the price of the security moves, as long the move is big enough.

Do butterfly spreads pay off the most?

Butterfly spreads pay off the most if the underlying asset doesn't move before the option expires. These spreads use four options and three different strike prices. The upper and lower strike prices are equal distance from the middle, or at-the-money, strike price. Butterfly spreads are strategies used by options traders.

What is a reverse butterfly option?

Reverse butterflies are not an overly common trading strategy but they can have their place in certain environments. Where you would normally enter a regular butterfly if you were expecting little movement in the underlying stock, a reverse butterfly option strategy is placed when a a large move is expected in the stock.