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Reverse Iron Butterfly Spread

Profile Version / Simplified Version / Comprehensive Version

Purpose Of Reverse Iron Butterfly Spread
1. To Profit From Stocks Expected To Go Up Or Down Quickly

Expectations Of Reverse Iron Butterfly Spread

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
Reverse Iron Butterfly Spread Risk Graph Learn How To Read This Chart

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.

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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

Maximum Loss: Limited to net debit paid

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:

  • Typically has a narrower breakeven range than a straddle or strangle.

  • Maximum loss and profits are predictable.

  • Able to profit whether the stock moves up or down.

  • Can be used by option traders who cannot use credit spreads.

    Disadvantages Of Reverse Iron Butterfly Spread:

  • Lower profit and higher loss than the Short Butterfly Spread or the Short Condor Spread.

  • Potential loss is much higher than the potential gain.

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    Questions? | Suggestions?

    What Is A Long Straddle?
    What Is A Long Strangle?
    What Is A Long Gut?
    What Is A Short Condor Spread?
    What Is A Short Butterfly Spread?
    What Is A Reverse Iron Condor Spread?
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