Name: Iron Butterfly

Setup: Buy (long) Strike A put and Sell (short) Strike B put and Sell (short) Strike B call and Buy (long) Strike C call

Bias: Neutral


Break-Even: Two breakeven points:


  • Strike B minus credit received
  • Strike B plus credit received

Max Profit: Limited: Credit Received

Max Loss: Limited: Strike B – Strike A – Credit received

Margin: Greater of the following:

  • Short call spread requirement
  • Short put spread requirement

Time Decay: Time decay is a positive effect for this position.  Ideally you want all of your options to expire worthless so you can keep the initial credit.

Implied Volatility: If the underlying is within Strike A and Strike C you want implied volatility to decrease.  This will decrease the value of your options so they expire worthless but it will also reduce the possibility of a large movement (something you don’t want).  If the underlying is outside Strike A or Strike C then you want implied volatility to increase so it will increase the value of your options.

Notes: None at this time

Featured in Trade Review: None at this time