How to Trade and Understand Butterfly Spreads on ThinkorSwim

In today’s video we’ll how to both trade understand butterfly spreads on the ThinkorSwim platform. The term butterfly spread refers to an options strategy that combines bull and bear spreads with a fixed risk and capped profit. These spreads are intended as a market-neutral strategy and pay off the most if the underlying asset does not move prior to option expiration. For it to work out you basically pick a price, usually right at the money, where you think the stock will be right at expiration. The bulk of the profit potential on the trade really wont come in until the day of expiration and even towards the last couple hours or even minutes of that trading day. So like I said, kind of like a lottery ticket. Low risk, high reward if your right. Although very unlikely you’ll be right.