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PLease Explain this Trading Term
- Thread starter tommo
- Start date
Quote from tommo:
Hi,
Sorry for what may seem a basic question to most of you.
I know what spread trading is but another common term I hear regarding trading approaches is "flys" . PLease could you explain to me what this is?
Thanks
Tom
When you hear "flys" the options traders are talking about trading butterfly positions, which is a type of option spread.
Just google it or do a search here on ET for "butterfly."
Butterfly
Definition:
Referring to the sale (purchase) of two identical options, together with the purchase (sale) of one option with an immediately higher exercise price, and one option with an immediately lower exercise price. http://www.trade2win.com/traderpedia/Main_Page
butterfly spread
Definition
An options strategy built on four trades at one expiration date and three different strike prices. For call options, one option each at the high and low strike price are bought, and two options at the middle strike price are sold. For put options, the trades are reversed. This is a limited risk, limited return strategy that pays off when the price of the underlier remains around the middle strike price. This strategy is essentially a combination of a bull and bear spread.
http://www.investorwords.com/
Definition:
Referring to the sale (purchase) of two identical options, together with the purchase (sale) of one option with an immediately higher exercise price, and one option with an immediately lower exercise price. http://www.trade2win.com/traderpedia/Main_Page
butterfly spread
Definition
An options strategy built on four trades at one expiration date and three different strike prices. For call options, one option each at the high and low strike price are bought, and two options at the middle strike price are sold. For put options, the trades are reversed. This is a limited risk, limited return strategy that pays off when the price of the underlier remains around the middle strike price. This strategy is essentially a combination of a bull and bear spread.
http://www.investorwords.com/