Option Strategy #7: Long Iron Put Butterfly

Buy 1 Put, Sell 2 Puts Further Out, Buy 1 Put Further Out

You use the Long Iron Put Butterfly when you expect the market to be range-bound, or make a small

down move, but not go beyond a specific point.

The profit potential is limited to the difference between the long put and the short put less the cost of

the spread. Maximum profit is achieved at expiration if the market is trading at the short strike price,

however, these trades have a rather large “profit playground.”

Being long the outside option and short the inside option, the risk is then limited, and with no margin

requirement. To keep the risk limited to what you paid for the spread, your long puts need to be the

same distance from the short puts.

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