Description:
This sideways strategy is a combination of a bull put spread and a bear call spread and consists of a long position in an OTM put option with a strike price K1, a short position in an ATM put option and an ATM call option with a strike price K2 , and a long position in an OTM call option with a strike price K3 . The strikes are equidistant: K2 − K1 = K3 − K2 = κ . This is a net credit trade. The trader’s outlook is neutral. This is an income strategy.
Understanding the Long Iron Butterfly
This strategy combines a short call at an upper strike, a long call and long put at a middle strike, and short a put at lower strike. The upper and lower strikes (wings) must both be equidistant from the middle strike (body), and all the options must be the same expiration.
This strategy profits if the underlying stock is outside the wings of the iron butterfly at expiration. Profit from a move in the underlying stock in either direction. The investor is looking for a sharp move either up or down in the underlying stock during the life of the options.