A neutral option strategy (limited profit and limited risk strategy) that combines a bull spread and a bear spread. This strategy involves three exercise prices. Calls and puts can be used to construct the butterfly spread.

More specifically, a portfolio can be created by a long call at a strike price X₁ and a long call at a strike price of X₃, (whre X₃ > x₁), and 2 short calls at a price that is mid-range between the two prices paid to purchase the former calls (X₂ = (X₁+X₃)/2.

This strategy better suits an investor who expects no large price movements over the life of the spread.