Iron Butterfly
An iron butterfly sells an at-the-money call and put (a short straddle) while buying a call and put further out — a defined-risk income strategy with a narrow but high-reward profit zone centered at the short strike.
- Max profit
- 800
- Max loss
- -200
- Breakeven(s)
- 92.0, 108.0
When to use
Use when you expect the underlying to pin very close to a specific price at expiration — typically at-the-money — and implied volatility is elevated. It collects more premium than an iron condor but has a much tighter profit range.
Risk profile
Maximum profit is the net credit collected, realized only if the underlying expires exactly at the short strike. Maximum loss on either side is the wing width minus the net credit. Both are fully defined at entry.
FAQ
How is an iron butterfly different from an iron condor?
In an iron butterfly the short put and short call share the same strike (usually ATM), creating a higher net credit and higher maximum profit, but a narrower profit zone. An iron condor has separate short strikes, lowering the credit but widening the range where you profit.
What are the breakevens for an iron butterfly?
Upper breakeven is the short strike plus the net credit; lower breakeven is the short strike minus the net credit. For example, selling the ATM 100 strike iron butterfly for a $6 net credit gives breakevens at $94 and $106.
Can I leg into an iron butterfly to improve the fill price?
Yes — many traders first sell the ATM straddle and then buy the wings, or vice versa. Legging in can improve pricing but adds directional risk during the time between legs.