Iron Butterfly

16/09/2010 01:48

It's considered a neutral strategy, and you would employ this method if you believe a stock will trade within a certain range by its option's expiration.

The trade consists of writing an at-the-money call and an at-the-money put; then buying an out-of-the-money call and an out-of-the-money put.

Essentially what we did was put on two spreads: one bear call spread and one bull put spread. Another way of looking at this is that we put on a short straddle  and a long strangle .