Iron Butterflies

Discussion in 'Options' started by jdoucet, Sep 28, 2006.

  1. jdoucet


    Does anyone trade this strategy? It seems like it gives a pretty good credit as opposed to the Iron Condor. I'm just curious about the experiences some of you have had if you traded these.

    The trade is:

    Long OTM Call
    Short ATM CALL
    Short ATM Put
    Long OTM Put
  2. blk


    An Iron Condor is usually constructed with a short OTM call, OTM put and further OTM long calls and puts (for hedging). What does that tell you? The risk of the shorts getting ITM is lowered by the OTM amount. So lower risk, lower reward.

    The iron fly is short ATM calls and puts. So just comparing with the iron condor, higher risk, higher reward. That's all.

    Also, the iron fly is just no different from a normal all-calls fly or an all-puts fly. Dont be fooled by the credit. The difference in strike price less the credit is what the all-call or all-put fly will cost you. Synthetically, they are the same.

    What is your market view? If you believe the underlying will just sit ATM, then the Iron fly or regular fly is a good strategy with limited risk (due to lower cost) and good reward. Flies are low probability high reward trades. So dont expect many of these to go in your favour.
  3. jdoucet


    That quote right there, is more than enough for me to look the other way and leave the flies on the side. I'm not interested in losing any money :) Thanks for the feedback.
  4. Let me know when you find a strategy that has 100% wins :eek:
  5. jdoucet


    I know I'll never find the "holy grail" in trading but I can stick to strategies that are more likely to turn a profit rather than those that aren't. I know you were just joking by the way...are were you? :confused:
  6. High probability is one thing. Risk/reward is another.


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  8. you have to take momoney with a grain of salt...occasionally he does smoke a little crack :) Each trader needs to define for themselves what type of trader they are and the market conditions they trade in. There is probably a time and place for everything and every type of trade. You need to do what is comfortable for you. If high prob/low reward is comfortable...wear it. If low prob/high reward is you wear that. The key is to trade mostly in your comfort zone but to have the flexibility to trade outside that when conditions dictate.
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  10. Oops. Looks like the link above exceeded bandwidth limits. It may play in a while.

    In-A-Gadda-Da-Vida - cool song from my youth. (only midi tho :()

    Good trading to all.
    #10     Sep 28, 2006