A butterfly spread is an option strategy used when a trader expects the underlying to stay near a specific price by expiry. It uses three strike price<\/a>s and four contracts. The strategy offers limited risk and limited reward and works well in range-bound markets.<\/p>\n This guide explains the butterfly spread and how Indian traders can use it.<\/p>\n A butterfly spread is a three-strike option strategy. It combines a bull spread and a bear spread around a middle strike.<\/p>\n A common long call butterfly uses:<\/p>\n All options share the same expiry.<\/p>\n The strategy reaches its maximum profit if the underlying expires at the middle strike. The maximum loss is the net premium<\/a> paid.<\/p>\n The breakeven points are the lower strike plus the net premium and the higher strike minus the net premium.<\/p>\n Traders use this strategy when:<\/p>\n The trade-off is a narrow profit zone.<\/p>\n A typical setup uses calls or puts.<\/p>\n Both deliver similar payoffs.<\/p>\n You can use this strategy on:<\/p>\n Weekly butterflies are popular near expiry.<\/p>\n Suppose Nifty trades at 22,000 and you expect it to expire near 22,000.<\/p>\n Net cost = 250 – (2 × 150) + 80 = ₹80<\/p>\n Maximum profit at 22,000 = (200 – 80) = ₹120 per point per lot<\/p>\n Maximum loss = ₹80 per point per lot<\/p>\n Breakevens = 21,880 and 22,120<\/p>\n The trade earns most if Nifty expires near 22,000.<\/p>\n The butterfly spread has clear features:<\/p>\n This makes it a clean range strategy.<\/p>\n The strategy fits when:<\/p>\n Match these conditions to your view.<\/p>\n Avoid this trade when:<\/p>\n A mismatch can lock you in losses.<\/p>\n New traders often:<\/p>\n A clean plan beats hopeful trades.<\/p>\n A few habits help:<\/p>\n Sound habits build steady results.<\/p>\n The two differ:<\/p>\n Both target a tight range.<\/p>\n Volatility plays a role:<\/p>\n Check IV before placing.<\/p>\n If the trade moves against you, you can:<\/p>\n These adjustments need practice.<\/p>\n The trade fits inside many wider plans:<\/p>\n Each variant has its own behaviour.<\/p>\n The butterfly spread is a fine tool for traders who can pick targets with care. Plan strikes wisely, control your size, and let the trade work inside a clear range view.<\/p>\n","protected":false},"excerpt":{"rendered":" Butterfly Spread: A Practical Guide for Traders A butterfly spread is an option strategy used when a trader expects the underlying to stay near a specific price by expiry. It uses three strike prices and four contracts. The strategy offers limited risk and limited reward and works well in range-bound markets. This guide explains the […]<\/p>\n","protected":false},"author":3,"featured_media":0,"menu_order":0,"template":"","meta":{"_uag_custom_page_level_css":"","footnotes":""},"class_list":["post-13802","glossary","type-glossary","status-publish","hentry"],"blocksy_meta":[],"uagb_featured_image_src":{"full":false,"thumbnail":false,"medium":false,"medium_large":false,"large":false,"1536x1536":false,"2048x2048":false,"web-stories-poster-portrait":false,"web-stories-publisher-logo":false,"web-stories-thumbnail":false},"uagb_author_info":{"display_name":"Team Lemonn","author_link":"https:\/\/lemonn.co.in\/blog\/author\/ashu\/"},"uagb_comment_info":0,"uagb_excerpt":"Butterfly Spread: A Practical Guide for Traders A butterfly spread is an option strategy used when a trader expects the underlying to stay near a specific price by expiry. It uses three strike prices and four contracts. The strategy offers limited risk and limited reward and works well in range-bound markets. This guide explains the…","_links":{"self":[{"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/glossary\/13802","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/glossary"}],"about":[{"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/types\/glossary"}],"author":[{"embeddable":true,"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/users\/3"}],"version-history":[{"count":0,"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/glossary\/13802\/revisions"}],"wp:attachment":[{"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/media?parent=13802"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}What Is a Butterfly Spread?<\/h2>\n
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How a Butterfly Spread Works<\/h2>\n
Why Use a Butterfly Spread<\/h2>\n
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Butterfly Spread Setup<\/h2>\n
Long Call Butterfly<\/h3>\n
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Long Put Butterfly<\/h3>\n
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Butterfly Spread in Indian Markets<\/h2>\n
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Example of a Butterfly Spread<\/h2>\n
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Risk and Reward<\/h2>\n
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When to Use a Butterfly Spread<\/h2>\n
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When Not to Use It<\/h2>\n
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Common Mistakes With the Strategy<\/h2>\n
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Tips for Better Use<\/h2>\n
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Butterfly Spread vs Iron Butterfly<\/h2>\n
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Butterfly Spread and Volatility<\/h2>\n
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Adjusting a Butterfly Spread<\/h2>\n
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Butterfly Spread in Strategy Trees<\/h2>\n
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Key Takeaways<\/h2>\n
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