Strategy lesson · Advanced · neutral
Iron Butterfly Explained
Short ATM straddle hedged with long OTM wings — max profit if price pins the body strike; tighter profit zone than a condor.
How a Iron Butterfly is built
Sell ATM call and put (or short straddle) + buy OTM call and put wings.
- Leg 1: buy put · strike template 90 · premium ~1 · 1 contract(s)
- Leg 2: sell put · strike template 100 · premium ~4 · 1 contract(s)
- Leg 3: sell call · strike template 100 · premium ~4 · 1 contract(s)
- Leg 4: buy call · strike template 110 · premium ~1 · 1 contract(s)
Risk & reward snapshot
| Market bias | neutral |
|---|---|
| Max profit | Net credit (max if pin at short strikes). |
| Max loss | Wing width − credit (defined). |
| Breakeven | Body ± credit (approx). |
Figures are conceptual for the classic structure. Your actual premiums, strikes, and fees change the numbers — confirm on the calculator.
When traders use it
- You expect low realized movement and possible pin near ATM.
Key risks
- Narrow peak — small moves can erase most credit.
- High short gamma near expiration.
Practical tips
- Compare iron condor if you want a wider profit plateau.
Practice on the calculator
- Open the Iron Butterfly calculator.
- Load a symbol and option chain; fill realistic mid premiums.
- Review max profit, max loss, breakevens, and the date × price heatmap.
- Change strikes and DTE to see how risk shape shifts.
FAQ
What is an Iron Butterfly?
Short ATM straddle hedged with long OTM wings — max profit if price pins the body strike; tighter profit zone than a condor.
What is the max loss on an Iron Butterfly?
Wing width − credit (defined).
When should I use an Iron Butterfly?
You expect low realized movement and possible pin near ATM.