The "daily Call" From Option Alpha: Options Trading | Stock Options | Stock Trading | Trading Online

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to be answering the question, “How do you convert an iron condor into an iron butterfly?” Let's start off with the basics of the iron condor. An iron condor is when you’re selling two credit spreads, one on either side, the call spread and the put spread to create this iron condor payoff diagram. For example, if a stock was trading at $100, you might sell the 105/110 call option spread and you might sell the 95/90 put option spread. On either side, you’re doing a $5 wide spread, about $5 from the market, very simple concept that we can use for our purposes here today. When you start converting an iron condor into an iron butterfly, what we want to get to is we want to get to that iron butterfly payoff diagram which looks more like a pyramid type shape on your P&L graph and that's where you have your short strikes at the exact same strike on the call and the put side. With an iron butterfly, you w