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Home / Education / Futures & Options Strategy Guide / Short Iron Butterfly

Short Iron Butterfly

Overview

Pattern evolution:
Short Iron Buttefly

Learn 21 futures and options trading strategies in this complimentary,  easy-to-read guide. Download Now >>

When to use: Enter when the Short Iron Butterfly’s net credit is 80 percent or more of C – A, and you anticipate a prolonged period of relative price stability where the underlying will be near the mid-point of the C – A range close to expiration. This is a rule of thumb; check theoretical values.

Profit characteristics: Maximum profit occurs if a market is at B at expiration. Profit would be equal to short straddle premium minus long strangle premium. This profit develops, almost totally, in the last month.

Loss characteristics: Maximum loss, in either direction, net premium collected minus (B-A). This is a very conservative trade, break-evens are at B + and – net premium collected.

Decay characteristics: Decay negligible until final month, during which distinctive pattern of butterfly forms. Maximum profit growth is at B. If you are away from (A-C) range entering the last month, you may wish to liquidate position.

CATEGORY:Precision
Short 1 call and 1 put at B, buy 1 put at A, buy 1 call at C
or sell straddle at strike price B and buy strangle at AC
for protection

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Additional Futures & Options Strategies

  • How to Use This Guide
  • Long Futures
  • Long Synthetic Futures
  • Short Synthetic Futures
  • Long Risk Reversal
  • Short Risk Reversal
  • Long Call
  • Short Call
  • Long Put
  • Short Put
  • Bull Spread
  • Bear Spread
  • Long Butterfly
  • Short Butterfly
  • Long Iron Butterfly
  • Long Straddle
  • Short Straddle
  • Long Strangle
  • Short Strangle
  • Ratio Call Spread
  • Ratio Put Spread
  • Ratio Call Backspread
  • Ratio Put Backspread
  • Box or Conversion

Contents Courtesy of CME Group.

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Risk Disclosure

THIS MATERIAL IS CONVEYED AS A SOLICITATION FOR ENTERING INTO A DERIVATIVES TRANSACTION.

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