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A short iron butterfly spread is a neutral strategy you might want to consider when you expect a stock or ETF to remain in a narrow trading range. Randy Frederick, Schwab Managing Director of Trading and Derivatives. Options carry a high level of risk and are not suitable for all investors.

Certain requirements must be met to trade options through Schwab. Multiple-leg options strategies will involve multiple commissions. For the sake of simplicity, the examples in this presentation do not take into consideration commissions and other transaction fees, tax considerations, or margin requirements, which are factors that may significantly affect the economic consequences of strategies displayed.

Please contact a tax advisor for the tax implications involved in these strategies. Spread trading must be done in a margin account. Supporting documentation for any claims or statistical information is available upon request. Schwab's StreetSmart Edge and StreetSmart. Call to request access a Schwab brokerage account is required.

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Long Iron Butterfly

Sharpen Your Trading Skills With Live Education Online Courses Local Workshops. Follow us on Twitter Schwab4Traders. Unlike traditional butterflies which can be created using calls or puts, iron butterflies are created using both calls and puts at the same time.

A short iron butterfly is a neutral strategy that has a limited loss potential if the underlying security moves sharply in either direction. An iron butterfly is considered "short" if a net credit is received when it is initiated: Schwab Center for Financial Research The options should all have the same expiration date and the strike range between the first and second leg should be the same as the strike range between the third and fourth leg.

Like many option strategies, the maximum gain, maximum loss, and breakeven points can all be calculated at the time of order entry. How to calculate price levels for a Short Iron Butterfly Assuming stock ZYX is trading at Example of a point short iron butterfly spread: Buy 5 ZYX Apr puts 5.

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Schwab has tools to help you mentally prepare for trading. Talk trading with a Schwab specialist anytime. Call M-F, 8: Get Commission-Free Online Equity and Options Trades for Two Years. Important Disclosures Options carry a high level of risk and are not suitable for all investors.