Long Iron Butterfly Options Strategy (Best Guide w/ Examples)

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. tastytrade, Inc. (“tastytrade”) has entered into a Marketing Agreement with Project Finance(Marketing Agent”) whereby tastytrade pays compensation to Marketing Agent to recommend tastytrade’ brokerage services. The existence of this Marketing Agreement should not be deemed as an endorsement or recommendation of Marketing Agent by tastytrade and/or any of its affiliated companies. Neither tastytrade nor any of its affiliated companies is responsible for the privacy practices of Marketing Agent or this website. tastytrade does not warrant the accuracy or content of the products or services offered by Marketing Agent or this website. Marketing Agent is independent and is not an affiliate of tastytrade.

[ronaldgibson]

If you move your wings in, say, one tick out on both sides you will have a narrow loss window and a large win window. Sell it as soon as it moves outside your wings, then repeat.

[yellowdrangon]

@porjectfinance So let me know If I have this correct, This option expires between the Middle Strike Price and the Short Put Strike You will be assigned -100 shares of stock
If Between the Middle Strike Price and Short Call Strike then. you will be assigned +100 shares of stock?
Do I have that correct?

[gorilla_man]

This is gold bro, absolutely make a bank on earnings week for many companies that move. Such as Amazon Google Tesla. As other comments stated. Thanks bro. I'm so glad not many people know this advanced strategy. If so it would take the value down some how.👍🏼🙏🏼

[Allourmanfam]

What happens when you buy an Iron Fly and the stock rallies? Does a Margin Call happen on your sold call and you get assigned 100 shares short (per contract)? Or would the brokerage eliminate the long call to neutralize that automatically?

Also, what if you buy a Put Butterfly instead? Does this avoid the margin call risk to the upside? And is it more profitable than the Iron Fly?

[sanbetski]

Whats the difference between a long iron butterfly vs long butterfly? Thanks!

[jasondean]

Say a stock is at $100.

I've found I get the same graph as a "Long" Iron Condor if I
Sell 110put, buy 105 put, buy 95 call, sell 90 call. It results in a net credit and the same potential profit loss graph as a regular reverse iron condor.

But I seem to get more favorable max loss vs max profit rario this way, and theta decay seems to work with me instead of against me.

Is there a name for this? For now I'm calling it a "Short" Reverse Iron Condor vs the normal way I see a RIC presented that results in a debit.

The same thing happens with reverse iron butterfly. If I flip the puts and calls and flip the buy and sells, I end up with the same graph, but often a Lowe max loss potential.

It DOES depend a bit on the stock and volatility. I'm still muddling through it, but it seems like one is better suited for theta decay or when IV is high and the other is best suits for entering when IV is already low.

Just not sure which is which yet.

:)

If you know a proper name for it I would appreciate it. Having trouble researching it without knowing what it's officially called.

[basheernp]

please explain adjustments for this strategy, if the trade goes against it

[deadbird]

When I try to set this up, my net debit is nearly as much as the width of my point spreads. ( Ex. 1 dollar point spread on both ends and I’m getting a .95 debit). That means my max profit is only 5 dollars no? What am I doing wrong? I am also just practicing set ups when the market is currently closed, so maybe it’s just not coming out right because of that.

[rickkassner]

So this is just a Put Debit Spread and a Call Debit Spread and betting high movement in either direction

[mcrane]

I appreciate all the videos, I've learned a lot from you guys but please, for the love of God pick a simpler options chain when you're trying to explain the concept. Go with like Intel. I'm good at math but running a four-leg option at $25 increments in my head watching a video is difficult.

[garrettbaker]

I come from a day trading background, where the risk/reward target is 1:4 or so. All I can see in these various options strategies is more potential risk than reward over time.

[vikkichowdary]

I guess commission and charges eats more of the credit recieved in this strategy.