a) Market is expected to remain with in a certain range of prices
        b) Unlimited profit and limited loss 

When an investor expects the prices at the time of expiry of contract to remain close to the current prevailing prices in the market, he may enter into the Butterfly strategy, which is created by buying two call options, one with low strike price and the other with comparatively high strike price, and selling two call options having the strike price which lies in the middle of above two strike prices and which is close to the current prevailing market price.

Let us take an example to understand this in detail- an investor takes following positions on 27^th May 2005 when Nifty Spot was Rs.2070.

Expecting that the market will remain close to the Spot Nifty price of Rs.2050 he creates a Butterfly Spread by selling two Nifty Calls of Rs.2050 and buying two Nifty calls of strike price Rs.2000 and Rs.2100 respectively for which he pays a net amount of Rs.10 as premium {Rs.98 (49*2) received for shorting two Calls and Rs.84 and Rs.24 paid for two Call options}.

His cash flow at different levels of Nifty closing on 30^th June05 (last Thursday of the following month) are as follows: