Analysis Techniques & Strategies
A Iron Bfly - Buy is a neutral quiet market strategy similar to a Butterfly or Iron Butterfly spread. It involves four transactions; selling one Put option at the lowest strike price, selling purchasing a Put options at the next higher strike price, purchasing a Call at the next higher strike price, and selling a Call option at the next higher strike price. A Iron Condor - buy is a strategy you can use when you feel the underlying asset is not going to make much of any price movement.
A Iron Bfly - Buy has a limited maximum profit potential. The position will also benefit from an decrease in volatility The transaction costs for this strategy are very high, since you must consider the slippage (bid-ask spread) for four separate positions.
Here is an example of this option strategy:
Short 2 XYZ OCT 55 Put $.75 you sell ($ money in)
Long 2 XYZ OCT 60 Put $3.25 you purchase ($ money out)
Long 2 XYZ OCT 65 Call $2.25 you purchase ($ money out)
Short 2 XYZ OCT 70 Call $1.25 you sell ($ money in)
You buy an Iron Condor for a credit.
| Risk Factor | Effect |
| Price Sensitivity [Delta] | Position benefits from a non-moving market |
| Time Decay [Theta] | Position benefits from the passage of time |
| Volatility Sensitivity [Vega] | Position benefits from a decrease in volatility |
Maximum gain is realized on expiration date between the strike price of the options sold.
Maximum loss is incurred outside the strike prices of the options bought.