Question#1: Is it too dangerous to leg in to a butterfly spread trade?

Answer: The answer to that is yes and no. I’m not meaning to be vague, but sometimes it can be risky and other times it can be beneficial.

That said, since the butterfly is made up of two spreads, it’s not a terrible idea to enter the trade as two separate spreads. I do this when placing condor/butterfly spreads on the S&P for example. Despite the S&P options market being very liquid, I find it easier to get a fill if I place two spread orders (vertical call spread and vertical put spread).

Question #2: I am familiar with option strategies. Can I apply most of the option strategies with the futures like there is an option strategy with is called butterfly and you did the same now with futures?

Answer: Futures spreads are a whole lot easier the grasp than options spreads for two reasons:

  1. There are fewer futures spread combinations than options (that is, there fewer strategies to learn in futures).
  2. Futures contracts always have a delta of 1.0 (using options language here). This means you don’t need to factor in delta, gamma, delta drift etc when looking at a futures spread. It just makes it really simple.

It’s interesting, to note that some people prefer option spreads, but this is only because it is what they are used to. Futures spreads are ‘undiscovered’ by comparison. That said, options spreads were pretty much the same about ten years ago.

As for the comment specific to butterflies, the futures butterfly and option butterfly are similar in some respects. Both have a 1:2:1 ratio and are made up of two spreads. The difference however is the option strategy is vertical (i.e. uses same expiry) whereas the futures strategy is horizontal (i.e. spreading different expiries).