← AdvancedLesson 19 · 5:43
Iron butterfly
Summary
You can build an iron butterfly with a put and a call sold at the same strike plus a wing on each side, and read its credit, maximum loss and break-evens. You can compare it with the condor and explain why its gain arrives late.
Key terms
- iron butterfly
- A put and a call sold at the same strike, with a bought wing on each side, paid most if the stock ends right at that strike.
- body
- The options sold in the middle of a condor or butterfly.
Check yourself
Answer each question to see why the right answer is right.
1. You sell the $100 put and call, buy the $95 put and $105 call, and collect $387. What is the most you can lose?
2. Where are the butterfly's break-evens?
3. XYZ ends at $102 on the last day. What do you keep?
4. Compared with the condor from lesson eighteen, what does the butterfly give up?
5. With XYZ at $100, how much of the $387 have you made with 10 days left?
Finished the video and the quiz? .