Iron Butterfly is one trade that a lot of traders in India try. So this article may be help to a lot of traders.
When To Trade Iron Butterfly:
This trade can be done when there is a sudden rise in volatility and the trader expects the volatility to drop in a few days and the stock to be range bound. Both volatility drop and passage of time helps the iron butterfly trade.
How To Trade Iron Butterfly:
Four trades are involved:
1) Sell One ATM (at the money) Call Option,
2) Sell One ATM (at the money) Put Option,
3) Buy One OTM (out of the money) Call Option, &
4) Buy One OTM (out of the money) Put Option.