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What is iron butterfly strategy?
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What is iron butterfly strategy?

An iron butterfly strategy is combined with two calls and two puts which are spread out over three strike prices, all with the same expiration date. A long strangle aims to make a profit when stock prices are expected to go up or down significantly and a short strangle earns a return when the stock prices are expected to stay stable or slight price change. Both the potential profit and maximum risk are limited.

Long Iron Butterfly

A long iron butterfly is a strategy when you expect the price of the underlying security will go up or down significantly within a certain time period. It is created with two calls and two puts which are spread out over three strike prices, all with the same expiration date. This strategy is established for a net debit, and both the potential profit and maximum risk are limited. The maximum profit is realized if the stock price is above the highest strike price or below the lowest strike price at expiration.

Short Iron Butterfly

A short iron butterfly is a strategy when you expect the price of the underlying security will stay stable or move near the middle strike price within a certain time period. It is created with two calls and two puts which are spread out over three strike prices, all with the same expiration date. This strategy is established for a net credit, and both the potential profit and maximum risk are limited. The maximum profit is realized if the stock price is equal to the middle strike price at expiration.

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