Butterfly Spread
A butterfly is long one wing, short two bodies, long the other wing — a bet on a pin or on the curvature of the smile.
Definition
Butterfly Spread refers to a bet on a pin or on the curvature of the smile. Keep that definition fixed when comparing series, managers, or regimes — renaming the same tape does not create a new signal.
Why it matters
Options and futures embed views on vol, skew, and path that cash markets only hint at. When a bet on a pin or on the curvature of the smile shifts, related hedges, limits, and narratives usually need an explicit update rather than a quiet assumption.
Case
Suppose a desk is positioned for the opposite of what butterfly spread is saying. If a bet on a pin or on the curvature of the smile moves against that book, the first question is not “is the story clever?” but whether size, hedges, and stop logic still match the observation.
How to read it
State the expiry and Greek exposure; unmarked vol or pinning effects rewrite the thesis. Prefer a short written null hypothesis for Butterfly Spread: what would falsify the current reading in the next window?