When I began talking about "free flies" in last week's Free Butterflies Ain't Free article, I already had a position in mind and was waiting to pull the trigger.  I had my eye on MSFT because it's been range bound for about 6 years now and it's closer to the bottom of its long term range.  I also felt the market was pretty depressed and due for a bit of mean reversion.  With that said, on Thursday, I initiated the bull vertical spread on MSFT by purchasing a 26 OCT put and a selling a 27 OCT put.  I purchased it sometime on Thursday for a credit of 0.45 per spread.  The market proceeded to dip more later in that day and MSFT underperformed on Friday which puts that spread in the red.  To complete the fly, I'll pick up a bear debit spread when it is price at 0.45.  This consists of a(nother) short 27 and a long 28 put.

So I'm clearly demonstrating at this point that this position is neither free or risk less.  However, it's an interesting strategy when we're range bound.  Another point I didn't mention in the previous article is that you're also limiting your profit zone.

Here is the P/L for a bull spread.

(click to enlarge)

And here is the P/L for a bull converted into a butterfly.  Obviously time is beneficial to the butterfly, but wild price movements are not.  If MSFT were to have a big rally, while I'm "risk free" in the best case, I'm also a "loser".  Not so for the vertical.

(click to enlarge)

As usual, I don't recommend getting into this position.