TYPES OF SPREADS – BUTTERFLY SPREADS

Butterfly Spreads are complex futures spreads that combine a near term bull spread with a longer term bear spread in order to profit from a change in term structure.

Futures Butterfly Spreads are a complex spreading strategy in futures trading. Futures butterfly spreads are used by traders when they are of the view that mid term futures prices are going to drop while short term and long term futures prices are going to remain stagnant or rise. These term structure changes are generally related to seasonal factors i.e. Commodities…

While futures bull spreads and bear spreads use only futures contracts from two different expiration months, futures butterfly spreads use futures contracts from three different expiration months. In fact, futures butterfly spreads are a combination of a bull spread and a bear spread with the short leg centred on the same calendar month. This forms a futures position with two long wings and one short body, which is how the name “Butterfly Spread” came about.