Since the long call in this strategy has a lower strike price than the short call, it must have less time value than the short call. It gets it’s name from a group of option strategies known as the wingspreads. A long iron butterfly spread realizes its maximum profit if the stock price is above the highest strike or below the lowest strike on the expiration date. When volatility falls, the opposite happens; long options lose money and short options make money. Article copyright 2013 by Chicago Board Options Exchange, Inc (CBOE). If the stock price is above the highest strike, then both calls are in the money and both puts are out-of-the-money. An options trader should compare a reverse iron butterfly and compare the maximum profit attainable if the price of the underlying security were to trade at a certain price. The time value portion of an option’s total price decreases as expiration approaches. In the example above, one 95 Put is sold, one 100 put is purchased, one 100 Call is purchased and one 105 Call is sold. This is known as time erosion. A long iron butterfly spread is a four-part strategy consisting of a bear put spread and a bull call spread in which the long put and long call have the same strike price. ©1998-2020 The Options Industry Council - All Rights Reserved. The forecast, therefore, must be for “high volatility,” i.e., a stock price move outside the range of the strike prices of the butterfly. Long Iron Butterfly. Characteristics and Risks of Standardized Options. Iron Butterfly was signed to ATCO records (a division of Atlantic Records) and released their first album, aptly titled “Heavy”. Options involve risk and are not suitable for all investors. 風險有限，最大為： A long iron butterfly spread has a net negative theta as long as the stock price is in a range between the lowest and highest strike prices. Straddle; Strangle; Cov'd Strangle; Synthetic Put; Reverse Conv' Custom. [ citation needed ] "In-A-Gadda-Da-Vida" was Iron Butterfly's only song to reach the Top 40 , reaching number 30,  though the album containing the full-length song was far more successful, reaching number four on the album chart and selling over a million copies. 後市股價在要固定幅中徘徊，有信心股價不會走出打和點. Regardless of time to expiration and regardless of stock price, the net delta of a long iron butterfly spread remains close to zero until one or two days before expiration. In that case, either both calls or both puts would be in-the-money. All options have the same expiration date, and the three strike prices are equidistant. When volatility falls, the net debit falls (and the spread loses money). As a result, it is essential to open and close the position at “good prices.” It is important to ensure the risk/reward ratio including commissions is favorable or acceptable. A long iron butterfly spread is a four-part strategy consisting of a bear put spread and a bull call spread in which the long put and long call have the same strike price. All Rights Reserved. Assignment of a short option might also trigger a margin call if there is not sufficient account equity to support the stock position created. At this price, all the options expire worthless and the options trader gets to keep the entire net credit received when entering the trade as profit. Ideally, you want the calls with strikes B and C to expire worthless while capturing the intrinsic value of the in-the-money call with strike A. So early exercise might be a good thing, although it may require borrowing stock or financing stock for one business day. While the band was on the road with the likes of: The Doors, Jefferson Airplane, The Grateful Dead, Traffic, The Who, and Cream , their impressive debut stayed on Billboard’s album charts for almost a year! The rest of the iron butterfly (short call + long call) is just like a bear call spread. Description. Each of the options must belong to the same underlying and must have the same expiration date. Should the investor not be assigned on the wing, they could be unexpectedly long or short the stock on the Monday following expiration and hence subject to an adverse move over the weekend. As with most strategies where the investor is a net buyer of option premium, passage of time, all other things equal, will have a negative effect on this strategy. As volatility rises, option prices tend to rise if other factors such as stock price and time to expiration remain constant. Note, however, that whichever method is used, buying stock and sell the long call or exercising the long call, the date of the stock purchase will be one day later than the date of the short sale. With the short iron butterfly, you buy outside wings to define your risk and create forced protection. To profit from a stock price move up or down beyond the highest or lowest strike prices of the position. Iron Butterfly is an American rock band best known for the 1968 hit "In-A-Gadda-Da-Vida", providing a dramatic sound that led the way towards the development of hard rock and heavy metal music. In other words, it works just like a bull put spread. An investor who buys an iron butterfly pays a premium somewhere between the minimum and maximum value, and profits if the butterfly’s value moves toward the maximum as expiration approaches. The result is that 100 shares of stock are purchased and a stock position of long 100 shares is created. A short iron butterfly consists of being long a call at an upper strike, short a call and short a put at a middle strike, and long a put at a lower strike. “Theta” is a measure of how much time erosion affects the net price of a position. S Long Iron Butterfly provádíte kreditní obchod s potenciálně velmi vysokým výnosem. As a result, stock is purchased at the lowest strike and sold at the center strike, so the maximum profit is earned, but no stock position is created. If at expiration the stock is trading right at either wing the investor faces uncertainty as to whether or not they will be assigned on that wing. This difference will result in additional fees, including interest charges and commissions. This strategy combines a short call at an upper strike, a long call and long put at a middle strike, and short a put at lower strike. Since an iron butterfly is a “four-legged” spread, the commissions typically cost more than a long butterfly. The long iron butterfly and the long iron condor are established by selling a straddle and buying a strangle that brackets the straddle, using both puts and calls.
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