Iron Butterfly
Outlook: Neutral
Butterflies and condors
A short straddle with defined risk via long wings. Tighter than an iron condor; more credit, smaller profit zone.
Max profit
Credit collected, reached at the ATM strike.
Max loss
(Wing width) - credit.
Breakeven
ATM strike +/- credit.
Legs
Long
1×
put
ATM −10
Short
1×
put
ATM
Short
1×
call
ATM
Long
1×
call
ATM +10
Structure
Short 1 ATM call + short 1 ATM put + long 1 OTM call + long 1 OTM put. Equal wing widths.
When to use
High IV expected to drop sharply, very tight directional range expected. More aggressive than iron condors.
Example
SPY at $450. Short 450 put $6, short 450 call $6, long 460 call $2, long 440 put $2. Credit $8. Max profit $8 at SPY = $450; max loss $2 outside the wings.
Notes
- Risk-reward is much better than iron condors but the profit zone is razor thin. Pin or close.
Build it in the simulator
Open this structure in the app, adjust spot, IV, and DTE, and watch the payoff and Greeks move.
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