[[Managing Currency Risk Using Foreign Exchange Options]] says
Butterfly is a combination of ATM straddle and an OTM strangle, and is a more exact way of trading the smile of volatility.
The OTM strangle relates net premium, in volatility terms, over the ATM ( volatility) rate. The purchase (or sale) of an OTM Strangle still leaves the trader open to a change in the ATM rates, so it's possible for a change in the smile shape to be compensated by a change in the ATM rates. To be more exact, trader can lock in the difference between the two (ATM vs OTM volatilities) by trading the butterfly spread.
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