butterfly option strategyIf you are an investor, then you can use options for making money which cannot be copied with other marketable securities like bonds and stocks. It is important to know that all kinds of option trading do not include risks.

However, most of them are associated with potential losses. These losses can be easily minimized with certain strategies and iron butterfly option strategy is the one that perfectly works out. This article will introduce you to the definition of iron butterfly option strategy and how does it work.

What is Butterfly Option Strategy?

The iron butterfly option strategy is among the best option strategies that are widely famous because of their wingspreads. Every strategy has been named after a creature like condor or a butterfly. However, the iron butterfly option strategy has been created with the combination of bull put and bear call spread. This combination comes with similar date of expiry which converges in the middle price of strike.

butterfly streategy

A put and short call, both are sold at the strike price that combines to form a butterfly’s body. The put and call are then bought below and above that middle strike price with respect to the kinds of wings. This kind of strategy is very much different from the basic spread of butterfly by two means. It is actually a spread of credit that pays a net premium to the investors at open. The other position of butterfly is that kind of position which is associated with the debit spread. It needs four different contracts in place of three.

How is the Butterfly Option Strategy Used?

According to the iron butterfly option strategy, there is a limitation of the gain and loss of investors. The strategy has been designed in order to allow you to keep a certain portion of the premium that is paid on initial basis. This happens when the security price and index close between lower and upper strike prices. You will have to utilize this iron butterfly option strategy when you are sure that the underlying instrument will stay within that particular range of price through the expiry date of options.

You will earn a higher profit when the underlying instrument’s price closes to middle strike price. You will observe a loss in case that price closes above or below the strike price. You can determine the break-even point by including or subtracting the amount of premium that is received by the middle strike price.

It is not mandatory for the lower and upper strike prices to stay equidistant from the middle price of strike. The iron butterfly option strategy is created with biasness in either of the two directions. You may observe that the prices of stocks my fall or rise but it will happen up to a certain level only.

It is also important to know that iron butterflies can be easily inverted for taking long positions at the middle strike price. However, the shorter positions are placed on the wings. This is usually done when you are earning higher profits during the time of high volatility for that particular instrument.

Like other stock trading strategies, it is really important that you understand the usage of butterfly option strategy if you want to maximize your profits through stock trading. Some automated trading systems (e.g. HBSwiss) successfully apply it too.

How to Choose Binary Broker?

right choiceIn order to start trading online you need to open an account with legit and trusted broker. In this field there are numerous non-regulated brokers, most of them with shady reputation.

Still, we are struggling to find the good ones and provide you with their unbiased reviews and customer feedbacks. Trading binary options is not absolutely free of risk but we can help you minimize it.

By researching the market daily and following the financial news, the team at Top10BinaryStrategy is always up to date with the latest alerts, and upcoming launches of trading systems, and brokers.

We advise you to Open Account with Top Rated Broker OR Choose from Our List.