A neutral option strategy (limited profit and limited risk strategy) that combines a bull spread and a bear spread. This strategy involves three exercise prices. Calls and puts can be used to construct the butterfly spread.
More specifically, a portfolio can be created by a long call at a strike price X1 and a long call at a strike price of X3, (whre X3 > x1), and 2 short calls at a price that is mid-range between the two prices paid to purchase the former calls (X2 = (X1+X3)/2.
This strategy better suits an investor who expects no large price movements over the life of the spread.
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