Iron Butterfly

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Iron Butterfly

An option strategy in which one takes a position on four options with three different strike prices. One buys an out-of-the-money put with a low strike price, sells a call and a put with the same at-the-money strike price, and, finally, buys an out-of-the-money call with the highest strike price. One profits from the price movement of the underlying asset over the life of the options. It is most beneficial when the underlying asset is expected to have low volatility.