Video Summary (2 minutes)
We’ve seen how a Credit Call Spread is a trade that sees gains if the stock stays below a certain level. And we’ve seen how a Credit Put Spread is for the stock to stay above a certain level. It follows then, that if we combine both spreads in the same expiration, we have a neutral view, where we are looking for a stock to stay within a range. Iron Condors and Iron Butterflies simultaneously sell Credit Call and Put Spreads to create a range of profitability. If the stock stays between the trade’s breakevens at expiration the trade collects income from the credit received. These income trades generally express a neutral view or a belief that there will be a decline in volatility. However, there are key differences and other use cases which we will cover in more detail when reviewing the individual strategies.