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What is a inverse iron butterfly?
DirectionalLimited ProfitLimited Loss
The opposite of a iron butterfly. This strategy is a net debit and unlike the long butterfly, it doesn't offer a very risk/reward ratio. If the stock moves in either direction you can net a small profit.
If volatility increases, the profitable range and chance of profit will increase as well. Time is harmful when the position is unprofitable, but helpful once it becomes profitable.
(also known as: Long Iron Butterfly)
- Sell a put at strike A
- Buy a put at strike B
- Buy a call at strike B
- Sell a call at strike C
