Ultimate Guide To Trading And Iron Butterfly Spread

An iron butterfly is a combination of a short straddle and iron condor. It's a great strategy to use during very high IV setups when you want to also reduce the capital required to hold the trade.

You'll build this strategy by selling both the ATM call and put strike (similar to a straddle) and then buying further OTM wings for protection (like an iron condor). The key is to use a wider spread in the strike prices to maximize the credit received.

For example, if a stock is trading at $50 you would sell the ATM call and put at $50 strike and then look to buy maybe the $45 or $40 puts below the market and the $55 or $60 calls above the market. The wider you can make the strategy the more credit received and higher probability of success.

[bobbysmith]

Hey Kirk great stuff. Would you please go more in detail on closing out this trade I.e exiting this position. Thank you sir

[unpescad]

Kirk do you ever have trouble getting out of these kinds of trades around expiry?

[May-mkkl]

What should I do if volatility decreases? Just leave it until experation and how do I get out of the trade do I buy back what I sold and sell what I bought?

[tung-ldws]

I see your cost for this trade is only $5. In TD ameritrade it's $18. What platform are you using?