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An options strategy with limited risk and limited profit potential that involves both a long (or short) straddle, and a short (or long) strangle. An iron butterfly contains four options; it is equivalent to a regular butterfly spread that contains only three options.

For example, a short iron butterfly might include:

  • Buy 1 XYZ May 60 call and 1 May 60 put
  • Write 1 XYZ May 65 call and 1 XYZ May 55 put

Related Terms:

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