Iron Butterfly

Market Terms

We don't know everything about the markets.  We're just devoted to learners.  Taken from those smarter than ourselves, here's how we define Iron Butterfly.

An options trade that uses 4 different contracts as part of a wider strategy to benefit from stocks or futures prices moving within a defined range.  It is constructed similarly to a short-straddle trade, with a long call and long put option purchased for protection.  The two call options and the two put options are spread over a series of 3 strike prices, all with the same expiration date.  The objective is to profit from conditions where the price remains fairly stable and the options demonstrate declining volatility (implied and historical).