A butterfly is an options trading strategy that involves combining a bull spread and a bear spread with the same expiration date. It is a limited risk, limited profit strategy that is typically used when a trader believes that the underlying asset will not move much before the expiration date.

For example, if a trader believes that a stock will remain relatively stable over the next month, they might sell a call option with a strike price of $100, buy two call options with a strike price of $105, and sell another call option with a strike price of $110. This creates a butterfly spread, with a maximum profit of the net credit received and a maximum loss equal to the difference between the middle and outer strikes minus the net credit received. If the stock price remains between the middle strikes at expiration, the butterfly will reach its maximum profit.