The "daily Call" From Option Alpha: Options Trading | Stock Options | Stock Trading | Trading Online

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to talk about how Theta decay impacts straddles versus iron butterflies. It’s important to understand as we talk about the differences between Theta decay as it relates to different option strategies, what the basic building blocks or core elements of each strategy are. In this case, straddles and iron butterflies are effectively one in the same strategy. They are synthetic equivalents of each other, so long as you're buying options far out on iron butterflies. Iron butterflies core strategy is a short straddle at the money, selling the at the money call and the at the money put. It’s the same strategy that you would use if you were doing a short straddle. Now, the difference is that with iron butterflies, you end up going far out of the money on either end and buying cheap protection. Now, the idea behind Theta decay would impact iron butterflies a little bit differently than straddles depending on