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I am not here for joking. I mean Future butterfly trades. You can google it and you would find a better way than laughing when you learn something new...
Treasury and eurodollar butterflies can be interesting, but not something I have pursued myself. My own observations suggest that a lot of the opportunities one might find are akin to the "picking up pennies in front of the steamroller" analogy; that is, high percentage trades with unattractive risk profiles. They work pretty well most of the time, but when they don't they tend to trap people and blow up spectacularly.
Again, these are just my own personal observations, specific to interest rates markets. I would love to be proven wrong.
Edited to add: just to be clear, I am not talking about options butterflies, but actual spread butterflies, as in the 2s-5s-10s fly in treasuries, for example
To be clear: I am talking of option butterflies. I rarely trade spread butterflies. Thus, the following comment is not a direct answer to your comment.
Whereas I consider OTM option selling as "picking up pennies in front of the steamroller", this seems not to be the case for option butterflies. You are still picking up pennies, but there is no steamroller. Most of the butterflies I trade are quite wide (see my example for NGK below) and have a relation of profit to loss of 2 : 1 or 1 : 1. for narrower ones the relation between profit potential and loss potential is better, but usually you do not earn the full profit.
The risky phase is during the last couple of days, when profit or loss rise significantly. I am usually out at this time, at least with part of the position.
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So everybody is on the same page.
There are several ways to construct an OPTION BUTTERFLY. An Iron Butterfly is where you Buy (Sell) a Straddle - aka the body - normally at or close to the money - and simultaneously Sell (Buy) a Strangle - aka the wings - normally an even distance away from the Straddle. For example with CL Z1 trading 59.75 I might Buy the 60 Straddle and Sell the 58-62 Strangle. This would be called a 58-60-62 Iron Fly. I am Short the 58 Put, Long the 60 Put & Call and Short the 62 Call. Alternatively I could buy the 58-60 Call Spread and sell the 60-62 Call Spread. This would be called a 58-60-62 Call Fly. Finally I could buy the 60-62 Put Spread and sell the 58-60 Put Spread. This would be called a 58-60-62 Put Fly. All 3 have identical payouts. If the distance between strikes is uneven, the structure is called a Broken Wing Butterfly. For example the Crude 57-60-62 fly would be a broken wing fly, since the difference in the strikes is different.
A FUTURES BUTTERFLY involves buying one futures spread and selling a second futures spread that share/involve the same contract on one leg. For example I might buy the CL V1-X1 Spread and sell the CL X1-Z1 spread. This would be called a V-X-Z Butterfly. Your position is Long 1 CL V1, Short 2 CL X1 (aka the body) and Long 1 CL Z1. Another example is the 2s-5s-10s @Schnook mentioned. In this case you would be buying the 2 Year Treasury vs 5 Year Treasury spread and then selling the 5 Year Treasury vs 10 Year Treasury. Your position is Long 2yr Treasury, Short 2x 5yr Treasury and Long 10yr Treasury.
Some markets, (Crude, Natural Gas, Eurodollars come to mind) have Futures Butterfly's listed as tradable instruments on Globex. In Crude popular butterflys are 1 month (ie VXZ), 3 month (normally in the HMUZ cycle so HMU for example), 6 month (normally in the MZ cycle so M1-Z1-M2 for example) and 12 month (normally only in Zs so Z1-Z2-Z3 for example). In Eurodollars 3, 6 and 12 month butterfly's are all traded, for all months. So unlike crude, things like U1-U2-U3 do trade. Eurodollars also trade Butterflys on the Packs. So for example there is a Jun21 Pack Butterfly. This involves buying the Jun21 Pack, selling the Jun22 Pack and buying the Jun23 Pack. The Jun21 pack is actually the package of 4 contracts, in this case Jun21, Sep21, Dec21 and Mar22. So the Jun21 Pack Butterfly actually involves 16 contracts spread across 12 different expiry months!
Even more complicated, Eurodollars has something called 'Double Flys' listed as tradable instruments. Just like a Butterfly it's the combination of two spreads, a double fly is the combination of two Butterflys. So you might buy the M1-U1-Z1 Butterfly and sell the U1-Z1-H2 Butterfly. Hence your position is Long 1x M1, Short 3x U1, Long 3x Z1 and Short 1x H2. This trade will make money if the U1-Z1 spread underperforms the M1-U1 and Z1-H2 spreads. ie you would buy the M1-U1-Z1-H2 Double Fly if you believed the U1-Z1 spread was over valued versus M1-U1 and Z1-H2.
