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Short Iron Butterfly

Short Iron Butterfly

  • date-icon Sep-13-2024

Short Iron Butterfly

Market View

Range-bound, not moving

The Trade

Sell a put and call at the same strike near the stock price. Your view is that the stock wont go down or up. Buy a lower Put and a higher call for protection on both sides just in case you're wrong.

Premium

Receive

Margin

Required

When To Do

  • If the stock will stay still and expire near the sell call and sell put strike.
  • Avoid trending markets
  • Avoid selling low IV

Pros

  • Delta Neutral - Immune to small moves.
  • Make money if nothing happens
  • Limited loss
  • Low vega risk and Theta risk

Cons

  • None

Time and Volatility

  • Gains time value everyday
  • Loses moderately if IV goes up

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