Iron Butterfly Spread : Butterfly Spread on Steroids


The Iron Butterfly Spread, as the name implies, is a variation of the butterfly spread.The "iron" terminology part of all spread strategies means to widen the range of the protective strangle purchased.

By purchasing the protective "wings" of the spread further out-of-the-money, the overall net credit received for selling the spread (that is to say, the potential profit) is increased, although with correspondingly increased risk of the overall position. Gee, increased reward/increased risk! No surprises there.

However, widening the range of the spread also offers possibilities for "rolling" the position up or down as a follow-up action, if needed, without disturbing the protective wings of the spread. Increased flexibility. Nice.

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