Butterfly Spread
A three-strike position buying one option at each outer strike and writing two at the middle strike.
Formula
Net Debit = Lower Premium + Upper Premium - 2 x Middle Premium; Maximum Gain = (Strike Interval - Net Debit) x Lot Size
Unit
₹
In depth
The butterfly pays most when the underlying finishes exactly at the middle strike and pays nothing beyond the outer strikes, which makes it a precise and narrow position on where the underlying will settle. Its appeal is a very small maximum loss relative to the maximum gain; its difficulty is that the profitable zone is narrow and the probability of landing in it is correspondingly low. Three strikes mean four legs and four spreads to cross, so execution costs consume a meaningful share of a small debit. The structure is described here as a payoff, not as a suggestion.
Worked example
Buy a 23,800 call at 440, write two 24,000 calls at 300, buy a 24,200 call at 190. Net debit = 440 + 190 - 600 = 30, or ₹2,250. Maximum gain at exactly 24,000 is (200 - 30) x 75 = ₹12,750.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Butterfly Spread” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.