 Hey everyone, welcome to another trading video from navigationtrading.com. In this video, I wanna talk about the difference between a butterfly spread and an iron butterfly. They are essentially the exact same trade when it comes to looking at a risk profile and your risk versus reward, but there are a few little nuances that I wanna make sure that you are clear on. So let's take a look first. We're just looking at XOP, which is a highly liquid symbol. And when I say highly liquid, the bid ask, the difference between the bid and the ask is very narrow, very tight, and there's a lot of open interest in a lot of the strikes here. So let's take a look at the two different variations. Let's start with a butterfly and we'll just do it on the call side. So if we right click on the at the money strike, which in this case is 32, it's trading at a little over $32 at this time. If we right click on that and just click buy butterfly, and we are on the thinkorswim platform, this will populate. Now, what happens is it shows the nearest strikes to the at the money. The one in the middle, where we're selling two for the butterfly is the 32, and then it defaults to one strike on either side. Now, we'd like to move those. When we trade a butterfly, we'd like to get those wings outside the expected move, which is shown in the upper right-hand corner here in toss. It's about $2.30. It's kind of the expected move over the next 31 days. And so in this case, we like to put the wings outside that. So for this example, let's just make those three points wide. So we'll make the strike below the 29 and the strike above the 35. So we're three points wide on both sides. Now, we take that to the analyze tab, just pull that over there. That's what the butterfly looks like. Now, by comparison, let's take a look at the iron butterfly. So to create an iron butterfly, we're simply going to right-click on that at the money strike. In this case, 32 again. We are going to sell an iron condor. They don't have a default strategy called iron fly in the toss system. So you just use iron condor, and then what we'll do is we'll make the strikes the same. We'll make the on the call side three strikes above. So that's going to be the 35. And the difference here is that we're not using all calls or all puts when trading the iron butterfly. We're doing two on the call side and two on the put side. So we're essentially selling a call vertical and selling a put vertical. And so in this case, because we want the iron fly, because we want that short strike to be the exact same strike, we've got to change this one to 32 to match up with the one that we did on the call side right here. And then we want the width three points wide. So we'll bring this down to 29. So we've got the 32, 35 call spread and the 32, 29 put spread. So if we bring this over to the analyze tab as well, what you'll notice is these look exactly the same, right? Exactly the same. We've got our price slices set. So you can see our probability of profit if we held all the way to expiration is about 46%. And if we switch over to the regular butterfly, it's almost identical. You got to move that just a tiny bit, but basically the same exact thing. The other thing, if we look at the max loss on the butterfly is 119 and the max profit is about 179. On the iron butterfly, max loss 121, max profit about 179, okay? So nearly identical. And sometimes I'll look at both just to see if there's a little slight edge on one or the other, but by all means they're pretty much identical. Now, when would you do a butterfly and when would you do an iron butterfly? Here's the main thing that you need to look at. If we're trading a super liquid underlying like XOP with thousands of contracts in open interest, then it really doesn't matter whether you trade an iron fly or a butterfly because you've got all this open interest on both sides. So regardless you do a put butterfly, a call butterfly, you've got plenty of open interest. The bid ask spreads are very tight so it really doesn't matter. The main issue that you come across is when you're trading symbols that are not as liquid. Let's just pick one down here. I call these my tier two stocks because they're not the super liquid ones but they're still tradable. Let's just look at ADM, okay? Archer Daniels Midland. Now what you'll see is you've got a lot less open interest. The bid ask spreads are a little bit wider. You've got 96 cents and 105 on the bid ask right there at the money. And more importantly, when you get in the money, these bid ask spreads get really wide. You've got 148 and 390. And so if you're doing a butterfly on the call side and for example, let's choose the 43 and we're gonna buy a butterfly. So that's the middle strike. But then if you wanna go three strikes higher, one, two, three, look how wide those are and you're getting into the hundreds as opposed to thousands of open interest, okay? However, if you did look at an iron butterfly, you've got a lot better coverage. So you've got, because you're using the out of the money calls, you're using the at the money call and then some out of the money calls and you've got thousands of contracts traded in those out of the money and the bid ask spreads are still very tight. And then on the put side, the out of the money, you've still got tight bid ask spreads and although they're not in the thousands, they're still a little bit better than if you went in the money where you're seeing zeros. So that's the main factor. The risk profile looks exactly the same. You just wanna determine if there's better liquidity in the iron butterfly versus the butterfly. Hope that was helpful. 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