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Significance of the word iron in option strategies

Personal Finance & Money Asked on August 11, 2021

Why is the word iron used in some of the option strategies, like iron butterfly or iron condor ?

2 Answers

I don't know how definitive it is, but Wikipedia has an answer:

The word iron in the name of this position indicates that, like an iron butterfly, this position is constructed using both calls and puts, by combining a bull put spread with a bear call spread. The combination of these two credit spreads makes the long iron condor (and the long iron butterfly) a credit spread, despite the fact that it is "long." This distinguishes the position from a plain Condor position (and the plain Butterfly), which would be constructed with all calls or all puts, by combining either a bull call spread with a bear call spread or a bull put spread with a bear put spread.

Investopedia (even less definitive) has a similar explanation:

The iron condor has a similar payoff as a regular condor spread, but uses both calls and puts instead of only calls or only puts.

So it seems that an "iron" spread is created with a combination of puts and calls, versus created with just puts or just calls.

Correct answer by D Stanley on August 11, 2021

Some option strategies have practical names based on the relationship of the respective options. For example, vertical, diagonal, horizontal/calendar, box, and ratio spread, as well as straddle, collar/fence.

Others are based on the appearance of the risk graph. For example, butterfly, condor, Christmas tree spread.

Others are just whimsical in nature such as poor man's covered call, jade lizard, twisted sister, iron albatross, gut spread, jelly roll, etc.

I wouldn't put much credence in the name of the strategy. Rather, you should focus on its risk graph to determine if it's suitable for your outlook for the underlying.

Answered by Bob Baerker on August 11, 2021

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