Chapter 16

Iron Condors and Butterflies with VIX Options

This chapter addresses the use of traditionally neutral option spreads with VIX options. A common use of these two strategies is to target a specific price or range of prices at option expiration. The pricing of each of these strategies and resulting risk reward is based on where the underlying security is trading in relation to the strike prices of the option contracts that are used to construct the spread. What makes these two neutral strategies attractive when traded using VIX options is that very relationship. That is when the VIX future price is at a premium or discount to the VIX index, a favorable risk reward may be available when a neutral outlook exists for the VIX index.

This chapter will follow the same format as the previous chapters describing the application of option spreads using VIX options. Each strategy will be introduced with an example of how it may be used in conjunction with traditional equity or index options. Then the same spread will be shown using VIX options. For this chapter, the two neutral spreads are an iron condor and iron butterfly.


An iron condor is a combination of a bull put and a bear call spread. Both of these strategies were discussed in the previous chapter. Recall that these two spreads are the credit versions of vertical spreads. A bullish vertical spread is initiated with the outlook that a stock will trade above the higher strike price, while a bearish ...

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