What Is a Bull Butterfly Spread?

A Bull Butterfly Spread is a neutral-to-slightly bullish options strategy that combines both a bull spread and a bear spread using Call options.

• Risk: Limited
• Reward: Limited
• Cost: Cheaper than buying naked Calls
• Best Use Case: When you expect the underlying to expire close to a specific level (middle strike).

🔹 How It Works

You use 3 Call options with the same expiry but different strike prices:

1. Buy 1 Lower Strike Call (ITM)
2. Sell 2 Middle Strike Calls (ATM or near ATM)
3. Buy 1 Higher Strike Call (OTM)

🔹 Example

• Underlying: Nifty at 20,000
• Setup: Bull Call Butterfly

1. Buy 19,800 CE at ₹300
2. Sell 2 × 20,000 CE at ₹200 each (₹400 total received)
3. Buy 20,200 CE at ₹100

Net Premium Paid = 300 – 400 + 100 = ₹0
(sometimes a small debit, sometimes a small credit)

🔹 Payoff Scenarios

1. If Nifty closes at 20,000 (Middle Strike)
   • 19,800 CE = ₹200 intrinsic value
   • 20,000 CEs = expire worthless
   • 20,200 CE = expire worthless
   • Profit = ₹200 – Net Premium Paid = ₹200 (Max Profit)
2. If Nifty closes below 19,800
   • All options expire worthless
   • Loss = Net Premium Paid (small or zero)
3. If Nifty closes above 20,200
   • 19,800 CE = ₹400 intrinsic value
   • 20,000 CEs = 2 × ₹200 = ₹400 loss
   • 20,200 CE = worthless
   • Net = Breakeven (no profit/loss)

🔹Strategy Summary

• Market View: Neutral to Slightly Bullish
• Max Risk: Net premium paid (usually small)
• Max Profit: Occurs if price = middle strike at expiry
• Best Case: Expiry exactly at middle strike
• Worst Case: Expiry below lower strike or above higher strike