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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. The trader will then receive the net credit of entering the trade when the options all expire worthless.
The iron butterfly is a special case of an iron condor (see above) where the strike price for the bull put credit spread and the bear call credit spread are the same. Ideally, the margin for the iron butterfly is the maximum of the bull put and bear call spreads, but some brokers require a cumulative margin for the bull put and the bear call.
A condor is a limited-risk, non-directional options trading strategy consisting of four options at four different strike prices. [ 1 ] [ 2 ] The buyer of a condor earns a profit if the underlying is between or near the inner two strikes at expiry, but has a limited loss if the underlying is near or outside the outer two strikes at expiry. [ 2 ]
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The short strikes are the same. In terms of CVAR (conditional value at risk), Butterfly is a useful strategy for 0DTEs (same day expiration contracts) because CVAR is low compared to many other strategies. [citation needed] Iron condor - the simultaneous buying of a put spread and a call spread with the same expiration and four different ...
The iron condor is an options trading strategy utilizing two vertical spreads – a put spread and a call spread with the same expiration and four different strikes. A long iron condor is essentially selling both sides of the underlying instrument by simultaneously shorting the same number of calls and puts, then covering each position with the purchase of further out of the money call(s) and ...
In summary, it is important to remember that a long calendar spread is a neutral – and in some instances a directional – trading strategy that is used when a trader expects a gradual or sideways movement in the short term and has more direction bias over the life of the longer-dated option.
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