Iron Butterfly

Categories: Options, Strategies, Investing and Trading,

An options strategy that poses limited risk and is created using four options at three consecutively higher strike prices. Each option located at a given strike price creates either a long/short straddle position or a long/short strangle position. At the middle strike price, one call option and one put option are given the same strike price and expiration date. At this level the options create a long or short straddle depending on which options are being purchased or sold. The remaining two options located at the lower and higher strike prices make up the "wings" of this option strategy. These "wings" are created when a strangle position occurs by one call option and one put option being given different strike prices, but the same expiration date.