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Is there such a thing as an American butterfly spread?

For a European butterfly spread simply buying 1 put with strike price X+a, 1 put with strike price X-a and shorting 2 calls with strike price X, all with the same expiration date, would give you a butterfly spread. However if we now do the same with american options, then we could exercise various parts of the strategy before others.

Are "fully" American option strategies commonly traded?

Thanks in advance.

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    I don't think you have your butterfly example correct. Loss of non-intrinsic value is what deters early exercise. – Optionparty Mar 7 '15 at 15:33
  • What do you mean by 'possible'? In your example, when you put on the trade, you have a butterfly, then if you choose to exercise a wing, you are left with a vertical spread. – Victor123 Mar 9 '15 at 20:01
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    unless he is asking if one of the short calls can be exercised randomly due to the lottery system at CBOE. If some bozo exercises his long calls early at a loss of premium, is it possible for one of these short calls to be randomly picked by CBOE and assigned, thus breaking the butterfly due to bozo's early exercise (american style options). Or are protections offered due to his entering a butterfly trade that would exclude him from the random assignment (or at least limit it to only when an opposing butterfly is exercised early) – Knuckle-Dragger Mar 15 '15 at 19:24
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A "fully" or "just" American strategy would include calculating for possible option assignments. In which case your possible loss equals option's intrinsic value (plus commissions), which is less than the option's market price, so you can immediately re-sell the same option, capture the difference and restore your position. You lose on commissions, spread and slippage and likes but gain on time value of the newly sold option. Given that simple trick, there seems to be little difference.

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Yes American versions of options spreads are traded very commonly. Some brokers such as ThinkorSwim show you american equity options spreads that are traded as one order and you can see they are very common.

Being exercised on your short legs is mostly advantageous to you, because you get all of the time value, early, and will still be hedged by all the shares/underlyings that you get.

Although it messes up your margin requirements, you don't have to adjust those instantly (you usually get 3 - 5 business days), and you are still hedged, so you should be able to get back into the position if you still want it because your short options will be covered by your long options still. You'll lose on slippage and commissions.

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