Short Call Butterfly

This is a volatility strategy consisting of a short position in an ITM call option with a strike price K1 , a long position in two ATM call options with a strike price K2 , and a short position in an OTM call option with a strike price K3 . The strikes are equidistant: K3 − K2 = K2 − K1 = κ. This is a net credit trade. In this sense, this is an income strategy. However, the potential reward is sizably smaller than with a short straddle or a short strangle (albeit with a lower risk). The trader’s outlook is neutral.