An Iron Butterfly is a Butterfly Spread Credit Strategy where a Short At The Money put and call are sold plus an Out Of The Money Long Put and and Long Call. An Iron Butterfly is equivalent to selling a Straddle and buying a Strangle (and is therefore considerably lower risk than a Short Straddle).
This strategy is non-directional and Volatility Bearish. The sale of the two At The Money call and put Options for more than the two protective Long Options generates a credit, in this respect, Iron Butterflies have some similarity with Iron Condors (which are two Out Of The Money put and call credit Spreads).
See the Profit & Loss diagram of the Iron Butterfly Spread at OptionCreator
Contributed by: Ralph Windsor
This strategy is non-directional and Volatility Bearish. The sale of the two At The Money call and put Options for more than the two protective Long Options generates a credit, in this respect, Iron Butterflies have some similarity with Iron Condors (which are two Out Of The Money put and call credit Spreads).
Iron Butterfly
See the Profit & Loss diagram of the Iron Butterfly Spread at OptionCreator
Related Directory Entries
External Links
Iron Butterfly (Tradeking Options Playbook)http://www.optionsplaybook.com/option-strategies/iron-butterfly/
A Tradeking Options Playbook article describing the options that an Iron Butterfly is composed of and its general characteristics.
Short Iron Butterflyhttp://www.optionseducation.org/strategies_advanced_concepts/strategies/short_iron_butterfly.html
OIC article on Iron Butterflies.
View OIC Options Glossary in Options Market Glossary Directory
3 Joys of a SPX Weekly Iron Butterfly?http://www.cboeoptionshub.com/2015/12/10/3-joys-of-a-spx-weekly-iron-butterfly/
Dan Sheridan explains how to implement weekly Iron Butterflies as income generating options trades in this CBOE Options Hub article.
View CBOE in Options Market Glossary Directory
3 Joys of a SPX Weekly Iron Butterfly?http://www.cboeoptionshub.com/2015/12/10/3-joys-of-a-spx-weekly-iron-butterfly/
Dan Sheridan explains how to implement weekly Iron Butterflies as income generating options trades in this CBOE Options Hub article.
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