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The long iron butterfly spread is an options trading strategy that consists of buying a call and put at the same strike price (a long straddle) while also selling an out-of-the-money call and put (a short strangle). The strategy can also be interpreted as the purchase of a call spread and put spread with the same long strike.
A long iron fly makes money when the stock price makes a large movement in either direction or when implied volatility increases. On the other hand, a long iron fly loses money when the stock price remains near the long strike as time passes, or when implied volatility decreases.
In this video, you’ll learn:
1. How to construct a long iron butterfly spread
2. The general strategy characteristics
3. What the expiration risk profile graph looks like for long iron butterfly spreads, as well as in-depth explanations as to why profits or losses occur at various stock prices.
4. How do long iron butterfly spreads perform when the stock price changes?
Additionally, you’ll see performance visualizations for three real long iron fly trades so that you can understand how the strategy performs in different scenarios.