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An option strategy that involves simultaneously buying an option with one strike price, buying an option with a second strike price, and selling two options with a third strike price that is midway between the prices of the first two options. The ratio for a butterfly is always 1 x 2 x 1. This is typically a limited risk, limited return strategy that can pay off when the price of the underlying remains near the middle strike price.

For example: Buy 10 March02 95 calls, Sell 20 March02 100 calls, Buy 10 March02 105 calls.

Long Butterfly

Two short options with the same class, multiplier, strike price and expiry, offset by one long option of the same type (put or call) with a higher strike price, and one long option of the same type with a lower strike price. All components must have the same expiry and underlying, and the intervals between strike prices must be equal.

Short Butterfly Put

Two long put options of the same class, multiplier, strike price and expiry, offset by one short put option with a higher strike price and one short put option with a lower strike price. All components must have the same expiry and underlying, and the intervals between strike prices must be equal.

Short Butterfly Call

Two long call options of the same class, multiplier, strike price and expiry, offset by one short call option with a higher strike price and one short call option with a lower strike price. All components must have the same expiry and underlying, and the intervals between strike prices must be equal.

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