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Butterfly Spreads Expose Traders to Multi-Leg Execution Risks
A butterfly spread is an options trade using three different strike prices.
A trader buys calls at the two outside strikes and sells twice as many calls at the middle strike.
The distances between the strikes must be equal.
Traders can use basket orders or multi-leg orders to place this trade.
Basket orders may lead to some parts of the trade being filled while others are not.
Market orders can also cause slippage, meaning the final prices are worse than expected.
Multi-leg orders may limit slippage but can be rejected if the exchange cannot complete the entire trade at the requested price.
The article says that choosing suitable strikes, such as 100-point intervals on the Nifty Index, may improve execution chances.
Butterfly call spreads use two long outer-strike calls and a short middle-strike call in a 1:2:1 ratio.
Basket orders may provide NSE SPAN spread-margin benefits but can create partial fills or slippage costs.
Multi-leg orders can reduce slippage risk but may be rejected if the stated net debit or credit cannot be filled.
The choice between net debit and net credit depends on the strikes selected for the butterfly spread.
On the Nifty Index, 100-point strike intervals may balance execution probability with upside potential.
- Who
- Options traders, brokers, and the National Stock Exchange of India are involved in the execution process.
- What
- The article explains execution risks when placing butterfly call spreads through basket and multi-leg orders.
- Where
- The discussion focuses on trading through the National Stock Exchange of India, including the Nifty Index.
- When
- The article was published on September 19, 2026.
- Why
- The choice of order type and strike spacing affects partial fills, slippage, and the likelihood that a spread order will be accepted and executed.
Key facts
- Strategy
- Butterfly call spread
- Leg ratio
- 1:2:1, with the short middle strike at twice the quantity of either long outer strike
- Basket-order risks
- Partial fills and slippage costs
- Multi-leg-order risk
- The order may be rejected if the stated net debit or credit cannot be filled
- Possible strike spacing
- 100-point intervals on the Nifty Index
- Margin consideration
- Basket orders are designed to optimize eligibility for NSE SPAN spread-margin benefits
- Publication date
- September 19, 2026
Sources
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