Iron Wingspreads
A note about short "iron butterflies" and "iron condors": despite the fact that they are short, they act the same as long call or put wingspreads in that they are a play for the same trading range that the strikes cover. Iron butterflies and iron condors are a seeming contradiction: you receive a credit to be long the range that you want the underlying to reside in.
Is the credit for the short iron butterfly better than a debit for a regular long butterfly? A short iron butterfly has the same risk/reward profile as a long call or long put butterfly, both of which cost money to be long. As can be seen in Exhibit 6-6, an iron butterfly is simply a long butterfly and a short box and for that reason a good reminder is to refer to it as a "long the wings butterfly". The credit comes from the short box embedded into the package. A short iron butterfly can be seen as either a long call butterfly plus a short box, whose strikes are at the lowest and middle strikes of the butterfly, or a long put butterfly plus a short box, whose strikes are at the middle and highest strikes of the butterfly.
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