Business Glossary

complex option strategy that involves selling two calls and buying two calls on the same or different markets, with several maturity dates. One of the options has a higher exercise price and the other has a lower exercise price than the other two options. An investor in a butterfly spread will profit if the underlying security makes no dramatic movements because the premium income will be collected when the options are sold.

options strategy designed to profit from stable or decreasing volatility. The spread involves trades in four call options, all with the same expiration date: an option with a low exercise price; the sale of two call options with an intermediate exercise price; and the purchase of a call option with a high exercise price.