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Chapter 2. Income Strategies > Long Iron Butterfly

2.5. Long Iron Butterfly

ProficiencyDirectionVolatilityAsset LegsMax RiskMax RewardStrategy Type
+
   +   
IntermediateNeutralLow• Long PutCappedCappedIncome
   • Short Put   
   • Short Call   
   • Long Call   


2.5.1. Description

The Long Iron Butterfly is an intermediate strategy that can be profitable for stocks that are rangebound. It is, in fact, the combination of a Bull Put Spread and a Bear Call Spread. The higher strike put shares the same strike as the lower strike call to create the butterfly shape. The combination of two income strategies also makes this an income strategy. Often, traders will leg into the Long Iron Butterfly, first trading a Bull Put Spread just below support and then as the stock rebounds off resistance adding a Bear Call Spread, thereby creating the Long Iron Butterfly.


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