Iron Butterfly
Iron butterfly: sell put(K_atm) + sell call(K_atm) + buy put(K_low) + buy call(K_high). Combines a short straddle (unlimited risk) with long OTM wings to cap losses. Net credit = collected ATM premiums − cost of wings. Maximum profit = net credit (if stock expires at ATM). Maximum loss = wing width − net credit. Breakevens: K_atm ± net credit. The iron butterfly is a more aggressive version of the iron condor — wider profit zone (all same middle strike) but requires the stock to expire near the strike.
Iron Condor
Sell an OTM put spread and an OTM call spread simultaneously — profits if the underlying stays in a wide range.
Straddle
Buying a call and a put at the same strike — profits from a large move in either direction.
Implied Volatility (IV)
The volatility that, when input into the BSM model, makes the model price equal to the market price of an option.