Iron Butterfly Strategy: The strategy combines a bear call credit spread and a bull put credit spread, with both spreads sharing the same short strike, aiming to profit from limited stock movement with defined risk and reward.
High Volatility Usage: Iron Butterfly is best used when implied volatility is high, and it involves selling an at-the-money call and put and buying a further out-of-the-money call and put option.
Crucial Position Monitoring: monitoring is crucial for options strategies, and traders should be aware of assignment risks and manage positions accordingly.
Iron Condor Strategy:The strategy combines a bear call credit spread and a bull put credit spread, generally using out-of-the-money options, to profit from a range-bound market with high implied volatility.
Maximum Profit Calculation: The maximum profit for an Iron Condor is the net premium received, while the maximum loss is the difference in call (or put) strike prices minus the premium received.
Position Monitoring Importance: Position monitoring is crucial for Iron Condors to manage assignment risk, especially if the underlying asset is at or near the short strikes at expiration.
Elevated Volatility Usage: The Iron Condor is best used when implied volatility is elevated, and traders expect the underlying asset to remain within a specific price range.
The Iron Condor provides a wider range for the underlying asset to move compared to the Iron Butterfly, offering lower profit potential but with more flexibility and lower risk.
Ken Keating is a Principal, Investor Education at OCC and is an instructor for The Options Industry Council (OIC). Ken began his 25-year trading career at Group One Trading in 1993 on the floor of the PSE (Pacific Coast Stock Exchange) and later transitioned to the floor of the CBOE (Chicago Board Options Exchange). He has held positions as a floor market maker, floor specialist, risk manager, and off floor prop-trader.
