In options trading, a long butterfly (sometimes simply butterfly) is a name given to a combination trade that results in the following net position:
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Long 1 call at (X − a) strike
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Short 2 calls at X strike
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Long 1 call at (X + a) strike
Expiration Date of Butterfly options
They are all having the same expiration date. At expiration if the underlying is below X−a or above X+a then the position will be worth zero, and it will be worth a positive amount between these two values. The shape of a payoff function is just like an upside-down V, and the maximum payoff occurs at X. 
The price of a butterfly is always non-negative since the payoff is sometimes zero, sometimes positive.
Other ways of Creating Butterfly Options
A butterfly can also be created as follows:
and this is equivalent to the call version since the traders are able to verify it via put–call parity.
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Tagged as:
bear put spread,
bear spread,
bull put spread,
bull spread,
butterfly payoff,
butterfly spread,
Credit spread,
currency trading,
Debit spread,
Expiration Date of Butterfly options,
Iron condor,
long butterfly,
long put butterfly,
Short butterfly,
unbalanced butterfly
In finance, If there is an involvement of a purchase of one option and a sale of another option in the same class and expiration but different strike prices then it is referred to as a credit spread, or net credit spread. For entering the position investors receive a net credit, and they want the spreads to narrow or expire for profit. On the contrary, to enter a debit spread an investor would have to pay.
Credit Spread Options
A credit spread is used by a trader as a conservative strategy which is designed to earn modest income for the trader while also having losses strictly limited. Simultaneously buying and selling of (writing) options on the same security/index in the same month, but at different strike prices are involved in it. (This is also a vertical spread)
If the trader is BEARISH (expects prices to fall), then you have to use a bearish call spread. This name is given to it due to the reason that you’re buying and selling a call and taking a bearish position.
Let us consider the following.
Trader James expects XYZ to fall from its current price of $35 a share.
Write 10 January 36 calls at 1.10 $1100
Buy 10 January 37 calls at .75 ($ 750)
Now you should consider the following scenarios:
There is a fall in the stock or it remains below $36 by expiration. In this case all the options expire worthless and the trader has got the net credit of $350 minus commissions (probably about $20 on this transaction) netting approx profit of $330.
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Tagged as:
BEARISH,
bearish position,
breakeven stock price,
BULLISH,
call spreads,
charting software,
conservative strategy,
Credit spread,
Credit Spread Options,
current price,
investors,
limited reward trades,
limited risk,
Maximum Gain,
Maximum Loss,
Maximum Potential,
negative vega,
net credit,
strike prices,
technical analysis,
trader,
volatility
