Iron Butterfly Option Spread
Iron Butterfly - This is a combination trade of the bear call spread and the bull put spread that is similar to the long condor. Buy one call at resistance and sell a lower strike call (usually 5 points); and buy one put at support and sell a higher strike put (usually 5 points). Look for a range bound market expected to stay in between the breakeven prices. This trade can be better than the condor when the puts and calls have different implied volatilities. Use all Calls or all Puts with less than 45 days to Expiration.
Entry Rules
Underlying asset in a range bound market and your outlook is for it to stay in a trading range.
Exit Rules
Hold Until Expiration and Keep Credit as Your Profit
Profit & Loss Calculations
Maximum Risk = Limited to difference in strike prices – net credit received
Maximum Profit = Limited to the net credit received
Upside Breakeven = Strike price of middle short call + net credit received
Downside Breakeven = Strike price of middle short put – net credit received
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