Category
About Us
Fees
Account
Promotion
Deposit & Withdrawal
Stock Transfer
Crypto
Trading
Markets
Product Navigation
Options Trading
  • Trading Steps
  • Trading Rules
  • Trading Privilege
  • Glossary
  • Others
Tax Season
IPO
IRA
What is an 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. An Iron butterfly strategy is the combination of a straddle and a strangle. 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. A short butterfly is created by selling one in the money option with a lower strike price, buying two at-the-money options, and selling one out-of-the-money-option with a higher strike price. 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.


Option trading entails significant risk and is not appropriate for all investors. Option investors can rapidly lose the entire value of their investment in a short period of time and incur permanent loss by expiration date. You need to complete an options trading application and get approval on eligible accounts. Please read the Characteristics and Risks of Standardized Options and Option Spread Risk Disclosure before trading options.

Problem Solved?
Yes
No