Iron Condor Versus Iron Butterfly

The spreads are very tight on the call side, but less so on the put side. Though we do have some decent open interest on the put side. Alternatively, we could do an Iron Condor with a body of 690/695, which is also very close to delta neutral. We could also pick the strikes of 685/700. The 700 call has a ton of open interest. The 685 put, not so much. But the spreads are tight.

Here we have an example of three potential choices. Neither is right or wrong. In many cases, we will be choosing between apples versus other apples. In this example, I would say it’s up to your preference whether to use an Iron Condor or an Iron Butterfly approach.

Concluding Remarks

Choosing the right options structure can be challenging. The Iron Condor and Iron Butterfly offer almost identical exposures. Both are risk defined trades which are short volatility. Making the choice between the two can often come down to the price of the underlying and strikes available.

On larger liquid stocks, the ultimate decision can often come down to personal preference or any directional view. Are you more inclined to take a higher odds of profit trade, or a higher risk to reward trade? Ultimately, when executed correctly, either trade can be profitable if realized volatility is less than what the market implies.

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Disclaimer: The information above is for educational purposes only and should not be treated as investment advice. The strategy presented would not be suitable for investors who are ...

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