This strategy combines a short call at an upper strike, a long call and long put at a middle strike, and a short a put at a lower strike. The upper and lower strikes (wings) must both be equidistant from the middle strike (body), and all the options must be the same expiration.
An alternative way to think about this strategy is a long straddle with a short strangle. It could also be considered as a bull call spread and a bear put spread.
The investor is looking for a sharp move either up or down in the underlying stock during the life of the options.
This strategy profits if the underlying stock is outside the wings of the iron butterfly at expiration.
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