This section looks beyond the basic vertical and butterfly spreads. You’ll learn how to construct and adjust uneven butterfly spreads, skip strike butterfly spreads, iron butterflies and iron condors. The basic butterfly spread that is purchased consists of layering a bear vertical call spread on top of a bull vertical call spread. The option that is sold for both the bull and bear vertical spreads is the same strike price. When buying this spread you are hoping for very little movement in the underlying if the middle strike price is close to where the underlying is currently trading. Buying a call butterfly above that level is bullish while buying a put butterfly below that level is bearish.
In an uneven butterfly spread you will learn how to vary volume and the width of the two vertical spreads that you are layering on top of one another. This creates different maximum profits and losses at different levels. The profit and loss characteristics remain defined, however. The skip strike butterfly keeps the volumes of a normal butterfly intact while varying the width of one of the vertical spreads.
You will learn how to construct an iron butterfly by combining a straddle with a strangle. You will also learn how to construct an iron condor by combining a purchase of a strangle with the sale of an equidistant strangle.