Options trading iron butterfly

In finance an iron butterfly, also known as the ironfly, is the name of an advanced, neutral-outlook, options trading strategy that involves buying and holding four different options at three different strike prices.

It is a limited-risk, limited-profit trading strategy that is structured for a larger probability of earning smaller limited profit when the underlying stock is perceived to have a low volatility. A short iron butterfly option strategy will attain maximum profit when the price of the underlying asset at expiration is equal to the strike price at which the call and put options are sold.

Short Iron Butterfly

The trader will then receive the net credit of entering the trade when the options all expire worthless. A long iron butterfly will attain maximum losses when the stock price falls at or below the lower strike price of the put or rise above or equal to the higher strike of the call purchased.

The difference in strike price between the calls or puts subtracted by the premium received when entering the trade is the maximum loss accepted. A long iron butterfly option strategy will attain maximum profit when the price of the underlying asset at expiration is greater than the strike price set by the out-of-the-money put and less than the strike price set by the out-of-the-money call. The trader will then receive the difference between the options that expire in the money, while paying the premium on the options that expire out of the money.

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Iron Butterfly Explained | Online Option Trading Guide

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Long Call Butterfly Spread | Butterfly Spreads - The Options Playbook

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Reverse Iron Butterfly Explained | Online Option Trading Guide

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