Iron butterfly (options strategy)

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. It is a limited-risk, limited-profit trading strategy that is structured for a larger probability of earning smaller limited profit when the underlying stock is perceived to have a low volatility.

${\mbox{ironfly}}=\Delta ({\mbox{butterfly strike price}})\times (1+rt)-{\mbox{butterfly}}$

It is known as an iron butterfly because it replicates the characteristics of a butterfly with a different combination of options (compare iron condor).^[1]

^ Natenberg, Sheldon (2015). "Chapter 14". Option volatility and pricing: advanced trading strategies and techniques (Second ed.). New York. ISBN 9780071818780.{{cite book}}: CS1 maint: location missing publisher (link)

[Natenberg_chapter_14-1] Natenberg, Sheldon (2015). "Chapter 14". Option volatility and pricing: advanced trading strategies and techniques (Second ed.). New York. ISBN 9780071818780.{{cite book}}: CS1 maint: location missing publisher (link)

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