Automate Your Iron Butterfly Strategy Using Python: A Step-by-Step Guide

Options trading offers a wide range of strategies for traders to capitalize on various market conditions. One such strategy that is favored by experienced traders is the Iron Butterfly. The Iron Butterfly is a neutral options strategy that involves selling an out-of-the-money (OTM) call and put option, while simultaneously buying a further OTM call and put option with the same expiration date. This results in a “butterfly” shaped payoff diagram that can generate profits in a range-bound market. In this article, we will delve into the details of the Iron Butterfly strategy, provide trade examples to illustrate its application, and show you how to automate it using Python.

Iron Butterfly Strategy:

The Iron Butterfly strategy is a four-legged options strategy that involves selling an OTM call and put option, and buying a further OTM call and put option with the same expiration date. The strike prices of the call and put options are typically equidistant from the current stock price, creating a symmetrical payoff diagram. The Iron Butterfly strategy is often used in a neutral or slightly volatile market, where the trader expects the underlying stock or index to remain within a specific range until expiration.

Trade Example: