The butterfly formula is simple once every leg is written with its sign. The harder part is keeping the quoted spread, USD exposure and P&L direction consistent.
Step 1: define the position
Let A, B and C be three dated futures of one commodity, all with the same unit and contract size. A long butterfly owns one A and one C and shorts two B. Its quote is F = A − 2B + C. The opposite basket has value −F.
Step 2: work through a price example
Suppose illustrative futures quotes are A = 480, B = 500 and C = 525 cents per bushel. Then F = 480 − 1,000 + 525 = 5 cents per bushel. If the later quotes are 485, 501 and 527, F becomes 485 − 1,002 + 527 = 10 cents per bushel.
Step 3: understand the two calendar spreads
F can be rewritten as (A − B) − (B − C). In the example, the first calendar spread changes from −20 to −16; the second changes from −25 to −26. Their difference increases by 5 cents. This is why the butterfly isolates the relative movement of neighboring calendar gaps.
Check the scope of the dollar result
The 5,000-bushel multiplier in this example applies only when the chosen contracts share that size. An exchange-defined butterfly can have product-specific conventions. Include four contract sides in transaction-cost estimates: one A, two B and one C. A theoretical mark is not necessarily an executable price.
Test the exact dated structure
Inspect the leg months, historical years and selected window before drawing a conclusion from an average curve.
Open Futures Spread Analyzer →Frequently asked questions
Why is the middle leg doubled?
The −2 coefficient makes the total outright coefficient zero and compares the middle price with both wings.
If F is positive, did the trade profit?
Only a change in F after entry determines the long-butterfly mark-to-market move; the starting sign alone says nothing about profit.
Exchange references
Use the exchange material for product definitions and confirm current specifications, listed combinations and margins with your broker.
Continue the Futures Butterfly Spreads series
Also read Futures Spread Trading and Calendar Spread Trading.
Bring the formula to the chart
Compare a defined structure across historical years and review every leg before making a decision.
Explore the Analyzer →Educational material only, not investment advice. Examples are illustrative. Historical results do not guarantee future performance. Trading costs and slippage are excluded unless explicitly stated.