The way to make money with a butterfly spread is to have the underlying security remain in a small range or for volatility to decrease. When you wish to trade a butterfly spread, go with those underlying securities with options being currently trading at a very high level of volatility. Search for visible support and resistance levels above and below the current price of the underlying stock. In exiting a butterfly spread, it often pays to look for the first good opportunity to exit with a satisfactory profit and move on to the next trade.

← previous tip                                              next tip →