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Options Glossary - Most Used Terms
Butterfly Spread
An option strategy that has both limited risk and limited profit potential, constructed by combining a bull spread and a bear spread. Three striking prices are involved, with the lower two being utilized in one spread and the higher two in the opposite spread. The strategy can be established with either puts or calls; there are four different ways of combining options to construct the same basic position.
See Also:
Spread: A trade in which two related contracts/stocks/bonds/options are traded to exploit the relative difference in price change between the two. A trading strategy in which a trader offsets the purchase of one trading unit against another.