Reverse iron butterfly
A long straddle with the wings sold to cut its cost.
Big move4 legsDebit
Illustrative: underlying at 100, strikes every 2.5, 45 days to expiry, implied volatility 25%, model prices. One lot = 100 shares.
Key figures
| Opens for | a debit of $506 |
|---|---|
| Max profit | +$244 |
| Max loss | −$506 |
| Break-evens | 94.94 and 105.06 |
| Position delta today | +1 share |
| Outlook | Big move |
The legs
| Action | Quantity | Option | Model price |
|---|---|---|---|
| Buy | 1 | 100 call, 45 days | 3.77 |
| Buy | 1 | 100 put, 45 days | 3.22 |
| Sell | 1 | 92.5 put, 45 days | 0.77 |
| Sell | 1 | 107.5 call, 45 days | 1.17 |
How it works
A long straddle with the wings sold to cut its cost. Condors and butterflies combine spreads so the profit sits in a zone around a price, with the risk on each side capped by the outer options, the wings.
When it fits
It suits a view that the underlying moves a long way, in either direction or the direction the structure leans to, before expiry.
What can go wrong
The most it can lose at expiry in this example is −$506. Short options can be assigned early, and a sharp fall with implied volatility rising can hurt more than the expiry line suggests, which is what the crash band shows.
Building it in Trident
In the Strategy Lab, choose reverse iron butterfly and the days to expiry. Trident applies these strike rules to your live chain, prices each leg and draws the trade on the risk graph, where you can drag the days to expiry, change implied volatility or switch on the crash band. When it looks right, send it to order management; nothing reaches your broker until you send it.
Frequently asked questions
What is a reverse iron butterfly?
A long straddle with the wings sold to cut its cost.
What is the maximum loss on a reverse iron butterfly?
In this illustrative example it is −$506 for one lot at expiry.
Where does a reverse iron butterfly break even?
With the underlying at 100 in this illustrative example, the break-even at expiry is 94.94 and 105.06.
Can I build a reverse iron butterfly in Trident?
Yes. Pick it in the Strategy Lab and Trident chooses the strikes from your live chain, prices the legs and draws it on the risk graph.
Illustrative example with model prices, not a recommendation. Options carry risk of loss. See the risk disclosure.