Why Trade a Butterfly Option Over A Calendar Spread Option?

Calendar Spread Option VS Butterfly Spread Option?

Many readers liked the MCD butterfly option I posted on Friday. Here’s the link if you missed it:


Calendar Spread Strategy

One reader posted an excellent comment that I decided to create a new post about. Here is what he asked:

As of Friday’s close, the 75 fly would cost $3.15 for a BE range of 73.16 76.86. Max profit at the 75 strike (if held to exp day)is approx $180 for a 57% ROI.

With a April/May 75 Calender Call Spread, (with a +1 IV skew),the cost is .83 for a similar BE range: 73.4576.46. Max profit at 75 strike is only $62 (compared to $180 for 75 fly), but the ROI is 75% (compared to 57% ROI for fly).

So here’s the $64 question: given these two ‘range-bound’ option strategies that offers nearly identical BE profit ranges, would it not make ‘more’ sense to go for the 75 Cal, given it’s purported superior Risk/Reward profile, in addition to savings on comm (2 leg vs 4 leg spread)?
Plz enlighten me – esp. on how decrease in IV affects Calender spreads.


Great question. I am not going to check his math because for the answer it does not matter. But in his analysis he feels that the Calendar spread on MCD would be a better trade than the butterfly spread I put on.

There are several ways to answer this so I am just going to ramble on. 🙂

First, the max ROI is not really important because I am not going to stick around for the max roi. I want to make my 15-20% and get out. It is virtually impossible to nail the max roi on one of these especially as crazy as the greeks get closer to expiration.

Second, since the breakeven range is about the same, you really can do either trade. So one is not better than the other. What makes the difference is how the options will behave – or how you think they will behave.

Third, my opinion was that prices will move up. When stock prices move up, option volatility goes down. When option volatility goes down, option premium goes down as well. So with the butterfly, the at the money option, (which we sold) will lose value the fastest if volatility comes down. And thus the butterfly spread could be making money very quickly if there is a strong move higher.

Butterfly Option Strategy

The butterfly makes money when volatility goes down. The calendar makes money when volatility rises, especially in the back (long) month.

So in this case, we have a Calendar with the short option in April, and the long option in May. MCD also has earnings on 4/21 which is in the May cycle. So May options will retain their premium because the implied volatility of the May options will remain stable until after earnings when they will drop. So a Calendar spread would work here as well.

BUT, the calendar loses money if volatility drops fast because the value of the long option drops as well. In this case, this might not happen because of earnings. Normally, you want to put on a calendar when you think volatility is at a low point and will increase. Calendar spread option make money quickly whenever volatility jumps.

I hope I earned the $64.

I chose the butterfly because I think MCD will go higher into quarter end and into earnings. and so the butterfly gives me a better chance to make my money faster and exit quicker than the calendar. Of course I could be wrong and MCD could go the other way. In that case the Calendar spread option would have been better. But both are doable in this situation.


  1. Charlie on December 19, 2011 at 10:04 pm

    Instead of the 4 legged butterfly, anticipating a decrease in volatility, why not do a credit calendar spread?

    • Genius on December 21, 2011 at 12:11 pm

      1. The way we do calendars – it is a debit, not a credit because we want the stock to stay still and not move much.

      2. The debit calendar spread will lose money if there is a large drop in volatility because the back month option will lose money as well. So Calendars are best done when volatility will increase or is already low.

  2. Daniel S McCabe on June 26, 2017 at 3:49 pm

    Diagonal spread could be a good choice too?

  3. Lokanath on July 1, 2018 at 8:50 pm

    What is pro-con of IRON BUTTERFLY using calendar spread? If I use next month options for my longs?

    • lasvegasbrad on November 10, 2020 at 9:00 pm

      Great question! I also have been asking this, and no answer.

      I dont even know what to call this: You sell near term butterfly, and buy a long term butterfly. NO margin, net debit. Double diagonal?

      Hope you can find out more.

      This is from above: The butterfly makes money when volatility goes down. The calendar makes money when volatility rises, especially in the back (long) month.

      So why not combine the 2 ideas? Seems a nice delta neutral strategy for this HIGH vix environment, where we dont even know who the president is of our country.

      • Ameen Kamadia on November 11, 2020 at 2:43 pm

        Sounds like something worth a test.

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