Options trading strategy: Iron Buttefly
Iron Butterfly
Butterfly spread is used to minimize the unexpected loses of the short straddle. You create a short straddle by selling an at the money call and put. Short straddle will only work when the volatility is low. If the market move sideways unexpectedly you create a hedge by buying one OTM call option and one OTM put option. This creates a butterfly spread.
Construction:
Buy one out-of-the-money put with a strike price below the current price.
Sell one at-the-money put.
Sell one at-the-money call.
Buy one out-of-the-money call with a strike price above the current price.
Courtesy Project Option &
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