F&O traders suggest Iron Butterfly strategy || Omnath Dubey

The Iron Butterfly is an options trading strategy that is popular among some F&O traders, particularly those who believe that the underlying asset will experience limited volatility in the near future.

The strategy is constructed by simultaneously buying and selling four options contracts with the same expiration date but different strike prices. Specifically, it involves buying a call option and a put option at the middle strike price, and selling a call option and a put option at a higher and lower strike price, respectively.

The Iron Butterfly strategy is designed to profit from a narrow range of price movement in the underlying asset. The maximum profit is achieved if the price of the underlying asset is equal to the middle strike price at expiration, and the profit is equal to the net premium received from selling the two options contracts minus the cost of the two options contracts that were purchased.

If the price of the underlying asset at expiration is outside of the range between the two outer strike prices, the trader will realize a loss. The maximum loss is limited to the net premium paid for the options contracts.

Traders who use the Iron Butterfly strategy believe that it can provide them with a limited risk and limited reward payoff, making it a suitable strategy for a market that is expected to remain relatively stable. However, like all options trading strategies, there are risks involved, and traders should fully understand the potential risks and rewards before implementing the strategy.