Butterfly Suits

• What is a butterfly suit?

A butterfly spread is a spread that takes advantage of the price difference between different delivery months and consists of two opposite directions, the cross-term spread of the delivery month contract in the shared home. It is an options strategy with limited risk and limited profit, made up of a combination of a bull market spread and a bear market spread. Butterfly arbitrage is a form of synthetic arbitrage in which the entire arbitrage involves three contracts. The three contracts in a futures arbitrage are short-term, long-term and longer-term, which we call near, mid-term and far-term. Butterfly arbitrage has no openings on the net position, it takes 1 short-term contract: 2 mid-term and 1 long-term in the position's placement. In which the short-term and long-term contracts have the same direction and the intermediate contracts have the opposite direction.

• The butterfly strategy

  The principle of butterfly arbitrage is similar to that of vertical arbitrage, in that it uses both buy and sell of the same commodity in the same month but at different prices. But the difference is that butterfly arbitrage consists of two opposite bidding directions, with a vertical arbitrage exchange with the same execution price coexisting. The specific way is to buy (or sell) a low execution price, sell (or buy) a high execution price, buy (or buy) a high execution price, and sell (or sell) a high execution price.

• The species of butterfly shells

  The butterfly option is divided into a multi-headed butterfly option and an empty-headed butterfly option. The butterfly option is used to buy a call option at a lower agreed price and a call option at a higher agreed price, and to sell two call options at an agreed price that is the median between the two agreed prices. If the market fluctuates only to a lesser extent as expected, a profit is obtained.