Neutral strategies: profiting from where price does not go
Neutral strategies do not need a direction. They express a view on a range: that the underlying will stay inside one, or break out of it. Most are four-legged structures whose maximum profit and maximum loss are both known the moment they are opened.
What are neutral strategies? Neutral option strategies are multi-leg positions built to profit when the underlying stays within, or moves outside, a defined price range rather than in a particular direction. Iron Condors and Iron Butterflies are the best-known, both collecting a net credit with a defined maximum loss.
Iron Condor
NeutralAn Iron Condor is a defined-risk neutral strategy that sells an out-of-the-money put spread and an out-of-the-money call spread, collecting a net cre…
Iron Butterfly
NeutralAn Iron Butterfly is a defined-risk neutral strategy that sells an at-the-money put and call on one strike and buys wings above and below, collecting…
Long Butterfly
NeutralA Long Butterfly is a defined-risk neutral strategy of three equally spaced call strikes — buy one lower, sell two middle, buy one higher — for a sma…
Short Butterfly
VolatileA Short Butterfly is a defined-risk, three-strike call strategy that collects a small credit kept only if the underlying finishes away from the middl…
Long Condor
NeutralA Long Condor is a defined-risk neutral strategy built from four call strikes for a debit, paying a flat maximum across the range between its two inn…
Short Condor
VolatileA Short Condor is a defined-risk strategy of four call strikes that collects a small credit kept only if the underlying finishes outside the range, a…
Christmas Tree Spread
NeutralA Christmas Tree Spread is a defined-risk, mildly bullish strategy built from calls in a 1×3×2 ratio — buy one lower, sell three middle, buy two high…
Box Spread
Direction-agnosticA Box Spread combines a bull call spread and a bear put spread on the same two strikes so the payoff is fixed at the strike distance whatever the und…
Jade Lizard
NeutralA Jade Lizard is a neutral-to-bullish strategy that sells an out-of-the-money put and an out-of-the-money call spread, structured so the total credit…
Broken Wing Butterfly
NeutralA Broken Wing Butterfly is a defined-risk butterfly with deliberately unequal wing widths, skewed so the structure costs almost nothing and the loss …
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Frequently asked questions
What are neutral strategies?
Neutral option strategies are multi-leg positions built to profit when the underlying stays within, or moves outside, a defined price range rather than in a particular direction. Iron Condors and Iron Butterflies are the best-known, both collecting a net credit with a defined maximum loss.
How many neutral strategies are there?
StrategyGyan documents 10 neutral strategies in full, each with a payoff diagram, its Greeks, its maximum profit and loss stated as a formula and as a worked number, and both NIFTY and BANKNIFTY examples.
Which of these has defined risk?
Iron Condor, Iron Butterfly, Long Butterfly, Short Butterfly, Long Condor, Short Condor, Christmas Tree Spread, Box Spread, Broken Wing Butterfly carry a structurally capped maximum loss. Jade Lizard do not — their loss is bounded only by how far the underlying can move.