"Mastering Iron Condor vs. Butterfly Spread!"

This article explains two non-directional options trading strategies, the Iron Condor and Butterfly Spread, ideal for low-volatility markets with neutral outlooks, detailing their structures, ideal conditions, and risk/reward profiles. Both strategies offer limited risk and reward, aiming to capitalize on time decay and price stability.


Strategy Description Key Components Ideal Market Conditions Risk/Reward
Iron Condor
The Iron Condor is a non-directional options trading strategy that involves selling an out-of-the-money (OTM) call and put while simultaneously buying further OTM call and put options. It aims to profit from low volatility and time decay.
  • Sell one OTM call option and one OTM put option.
  • Buy one further OTM call option and one further OTM put option.
  • Low volatility market.
  • Neutral outlook where the underlying asset is expected to stay within a specific range.
  • Risk is limited to the difference between strike prices minus the net credit received.
  • Reward is limited to the net credit received.
Butterfly Spread
The Butterfly Spread is a neutral options trading strategy that combines bull and bear spreads to create a position with limited risk and reward. It involves using three strike prices to profit from low volatility where the underlying asset remains near the middle strike price.
  • Buy one lower strike price option.
  • Sell two at-the-money (ATM) options at the middle strike price.
  • Buy one higher strike price option.
  • Low volatility market.
  • Neutral outlook, expecting the underlying asset to stay near the middle strike price.
  • Risk is limited to the net debit paid to enter the trade.
  • Reward is limited to the difference between strike prices minus the net debit paid.


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