How do you do the Iron Butterfly option strategy?
Thus, an iron butterfly option strategy involves the following:
- Buying and selling of Call/Put options (Bull Call spread & Bear Put spread combination)
- All options have the same underlying asset with same expiry date/expiration.
- It involves combining four option contracts.
Is Iron Butterfly a good strategy?
Risk-averse traders and investors may consider the Iron Butterfly as a less risky but profitable method for generating income. The key attraction to this strategy is the capped risk and potential for a high return. The Iron Butterfly is an advanced options strategy – and a popular income strategy.
What is long iron butterfly options strategy?
A Long Iron Butterfly is implemented when an investor is expecting volatility in the underlying assets. This strategy is initiated to capture the movement outside the wings of options at expiration. It is a limited risk and a limited reward strategy.
When should I sell my iron butterfly?
The key to using this trade as part of a successful trading strategy is forecast a time when option prices are likely to decline in value generally. This usually occurs during periods of sideways movement or a mild upward trend. The trade is also known by the nickname “Iron Fly.”
Is iron butterfly profitable?
Overall, a short iron butterfly spread does not profit from stock price change; it profits from time decay as long as the stock price is between the highest and lowest strikes.
What is a condor option?
The condor option strategy is a limited risk, non-directional option trading strategy that is structured to earn a limited profit when the underlying security is perceived to have little volatility. A total of 4 legs are involved in the condor options strategy and a net debit is required to establish the position.
What is an iron condor option strategy?
An iron condor is an options strategy consisting of two puts (one long and one short) and two calls (one long and one short), and four strike prices, all with the same expiration date. The iron condor earns the maximum profit when the underlying asset closes between the middle strike prices at expiration.
What is the difference between iron condor and iron butterfly?
The difference between an iron condor and an iron butterfly comes in how you structure the strike prices and the premiums of your short contracts. In an iron condor your short contracts have different strike prices and lower premiums. In an iron butterfly they have the same strike price and higher premiums.
How do I sell my butterfly options?
The short butterfly spread is created by selling one in-the-money call option with a lower strike price, buying two at-the-money call options, and selling an out-of-the-money call option at a higher strike price. A net credit is created when entering the position.