Long butterfly[ edit ] A long butterfly position will make profit if the future volatility is lower than the implied volatility. All the options have the same expiration date.
Short butterfly[ edit ] A short butterfly position will make profit if the future volatility is higher than the implied volatility. A short butterfly options strategy consists of the same options as a long butterfly. However now the middle strike option position is a long position and the upper and lower strike option positions are short.
Margin requirements[ edit ] Margin requirements for all options positions, including a butterfly, are governed by what is known as Regulation T. However brokers are permitted to apply more stringent margin requirements than the regulations. Butterfly variations[ edit ] The double option position in the middle is called the body, while the two other positions are called the wings.
The option strategy where the middle options the body have different strike prices is known as a Condor.
In case the distance between middle strike price and strikes above and below is unequal, such position is referred to as "broken wings" butterfly. References[ edit ] McMillan, Lawrence G. Options as a Strategic Investment 4th ed.