Iron butterfly options
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Updated Jun 24, What is an Iron Butterfly?
The strategy is created by combining a bear call spread with a bull put spread with an identical expiration date that converges at a middle strike price. Second, the strategy requires four contracts instead of three.
Key Takeaways The iron butterfly strategy is a credit spread that involves combining four options, which iron butterfly options both risk and potential profit. The strategy is best employed during periods of lower price volatility.
For example, let's say ABC Co. The breakeven trading go can be determined by adding and subtracting the premium received from the middle strike price.
Of course, it is not necessary for the upper and lower strike prices to be equidistant from the middle strike price. Advantages and Disadvantages Iron butterflies provide several key benefits.
They can be created using a relatively small amount of capital and provide steady income with less risk than directional spreads. However, this type of strategy is only appropriate after thoroughly understanding the potential risks and rewards.
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