Can someone highlight the major differences between them and when would be a good time to use one vs. the other? It's a great strategy to use during very high IV setups when you want to also reduce the capital required to hold the trade. With ThinkOrSwim you can add custom charts so you can see IV percentage or IV ranking over the last year. I've found long flys to have slightly more neg deltas, possibly because of that, or it might be differences in skew. font-size: 22px; The Vega here of -28 ( minus 28) means that if each of the strikes of the butterfly dropped 1 point equally in implied volatility, the trade would theoretically make about 28 dollars from the volatility decreasing. new Date().getTime(),event:'gtm.js'});var f=d.getElementsByTagName(s)[0], margin: 0 0 20px; An iron butterfly is the combination of a put credit spread and a call credit spread where there short options have the same strike. With an initial sale price of $66.15, the profit for the iron fly seller is $5,365: ($66.15 initial sale price - $12.50 expiration value) x 100 = +$5,365. The main difference lies in the composition of options contracts you use to construct the butterfly spread. line-height: inherit; Summed up, a put broken wing butterfly is a bullish/neutral strategy. It can also be a combination of both, and it's usually more pronounced in less liquid options. } Get it as soon as Fri, Nov 13. Since an iron butterfly is a “four-legged” spread, the commissions typically cost more than a long butterfly. However, the condor also offers lower profit potential. We already know that iron butterfly is a combination of short straddle and long strangle, or a combination of bull put spread and bear call spread. The top straddle had a 51% drawdown at some point during the trade. T-365AB-G. Long butterfly spreads are entered when the investor thinks that the underlying stock will not rise or fall much by expiration. However, I don't really know the distinguishing features between these two. [CDATA[ Variations. NavigationTrading April 19, 2019 Trading Options For Income Strategies. margin: 0 0 20px; font-weight: bold; })(window,document,'script','dataLayer','GTM-PM36KHB'); To profit from a stock price move up or down beyond the highest or lowest strike prices of the position. Everything “iron” involves a Put spread and a Call spread. } The Iron Butterfly has more narrow structures than the Iron Condor, however, it has a better risk-to-reward, because your return can be so much higher on-the-money at risk than with the Iron Condor.This is because you received more premium selling the at-the-money options. Press question mark to learn the rest of the keyboard shortcuts. text-decoration: underline; At expiration, the stock price was trading for $737.60, which means the long 750 put was only worth $12.40 while all of the other options expired worthless. An iron butterfly is a combination of a short straddle and iron condor. Checkout OptionAlpha.com You can create an account for free and there's a bunch of videos and material you can access free that will explain a lot about the differences. In finance an iron butterfly, also known as the ironfly, is the name of an advanced, neutral-outlook, options trading strategy that involves buying and holding four different options at three different strike prices. They are equivalent from a risk/reward perspective given equal strikes and distance between the wings. That means the Put and Call share a common short strike. The formula for calculating maximum profit is given below: } Thanks in advance for any help you can provide regarding the above. *When you trade straddles you get a higher return and make more money, but in exchange you give up the stability of your portfolio. On another note, I'm using the Power E*TRADE platform to analyze options. Some small differences can be present, though, which are normally attributed to the bid-ask spread tending to widen on the ITM long call in the natural fly due to less liquidity. The term iron butterfly or Iron fly is used in Finance. 
 In this TradeHacker Video Lesson, we'll talk about the difference between a Butterfly Spread and an Iron Butterfly. course training? When you go to close, you'll usually have to give up more to have it taken off your hands compared to the equivalent OTM in the iron fly. The top iron butterfly had a 42% drawdown. A long call butterfly is a debit directional strategy that profits only if the stock moves up far enough. Your maximum profit zone is wider for a condor than it is for a butterfly. For most intents and purposes they are exactly the same. font-size: 26px !important; However, those probabilities refer to holding both trades till expiration. A butterfly call spread is the combination of a call debit spread and a call credit spread in which the short strikes are the same. 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