Reverse Iron Butterfly Spread

How Does Reverse Iron Butterfly Spread Work in Options Trading?

Learn How To Read This Chart

Purpose Of Reverse Iron Butterfly Spread

1. To Profit From Stocks Expected To Go Up Or Down Quickly

Expectations Of Reverse Iron Butterfly Spread

Volatile

Type Of Spread

Debit Spread

How To Use Reverse Iron Butterfly Spread?

There are 4 option trades to establish for this strategy : 1. Sell To Open X number of Out Of The Money Call Options. 2. Buy To Open X number of At The Money Call Options. 3. Sell To Open X number of Out Of The Money Put Options. 4. Buy To Open X number of At The Money Put Options.

Sell OTM Call + Buy ATM Call + Buy ATM Put + Sell OTM Put

Profit Potential of Reverse Iron Butterfly Spread :

Reverse Iron Butterfly Spreads achieve their maximum profit potential at expiration if the price of the underlying stock exceeds the upper or lower breakeven point.

Profit Calculation of Reverse Iron Butterfly Spread:

Maximum Profit = Greatest Difference In Strike - Debit
Maximum Loss Possible = Net Debit

Risk / Reward of Reverse Iron Butterfly Spread:

Upside Maximum Profit: Limited

Break Even Points of Reverse Iron Butterfly Spread:

Upper Break Even Point = Long Call Strike + Debit

Lower Break Even = Long Put Strike - Debit

Advantages Of Reverse Iron Butterfly Spread:

Potential loss is much higher than the potential gain.

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