OPENING: XLU DEC 2ND 45/48.5/48.5/51 IRON FLY
Here are the metrics for the setup:
Probability of Profit: 43%
Max Profit: $175/contract
Max Loss/Buying Power Effect: $175/contract
Break Evens: 46.75/50.25
Notes: As you can see, this isn't a very high probability setup. Basically, it's a risk one to make one. The notion here is to take maximum advantage of the at-the-money premium as you would with a short straddle, which -- like an iron fly -- is a short strategy. If you sell your short options farther away from current price, as you would with an iron condor, your probability of profit increases, but your profit potential decreases because the out of the money strikes bring in less premium.
From a price action standpoint, you're looking for price to stay within your break evens and ideally for to collapse somewhat running toward expiry.
Unlike an iron condor or short strangle, I look to manage at 25% max profit.