Iron Butterfly
An iron butterfly collects maximum premium when the stock stays exactly at your short strike at expiration. It's a tighter, higher-reward version of an iron condor — you collect more premium, but you need the stock to stay very close to one specific price.
How an Iron Butterfly Works
An iron butterfly uses four legs: you sell an at-the-money call and put at the same strike (the body), and buy a higher call and lower put for protection (the wings). Selling both the ATM call and put collects significantly more premium than an iron condor because ATM options carry the most time value.
The position profits most when the stock closes exactly at the short strike at expiration. The further the stock moves away from that price in either direction, the more value the position loses. Maximum loss is reached if the stock moves beyond either wing strike.
Example: A stock is at $100. You sell the $100 call for $4.00, sell the $100 put for $3.50, buy the $110 call for $1.00, and buy the $90 put for $0.75. Net credit: $5.75 per share ($575 total). If the stock closes exactly at $100 at expiration, you keep the full $575. If it closes at $110 or above, you lose the maximum: ($10 spread − $5.75 credit) × 100 = $425.
Iron Butterfly vs Iron Condor
The iron condor has two separate short strikes — one for calls and one for puts — creating a range where you profit. The iron butterfly has one shared short strike for both the call and put. This means the butterfly collects more premium (you're selling ATM options on both sides) but has a narrower profit zone — the stock needs to land very close to one price rather than staying within a range.
Iron condor: wider profit zone, less premium, more forgiving. Iron butterfly: tight profit zone, more premium, requires precision.
Maximum Profit, Maximum Loss, and Breakeven
Maximum profit: The net credit received. In the example, $575. Achieved only when the stock closes exactly at the short strike.
Maximum loss: (Wing width − credit received) × 100. In the example: ($10 − $5.75) × 100 = $425. Occurs if the stock closes beyond either wing at expiration.
Breakeven points: Two. Upper: short strike plus credit ($100 + $5.75 = $105.75). Lower: short strike minus credit ($100 − $5.75 = $94.25).
When to Use an Iron Butterfly
You expect the stock to pin near a specific price at expiration. This is rare in practice, but it happens — stocks sometimes gravitate toward heavily-traded strikes as expiration approaches, a phenomenon sometimes called "max pain."
Implied volatility is very high. The ATM options you're selling carry the most vega, so you benefit most from IV crush. If you expect volatility to collapse after an event and the stock to settle near its current price, the butterfly captures that collapse efficiently.
You want maximum premium relative to the spread width. The butterfly typically offers a higher credit-to-width ratio than the condor for the same underlying and expiration.
Frequently Asked Questions
Is an iron butterfly harder to manage than an iron condor?
Yes. Because the profit zone is so narrow, the stock only needs a small move to threaten the position. Most traders manage iron butterflies more actively — rolling or closing when the stock moves 2–3% away from the short strike.
Can I build an iron butterfly in OpCalc?
Yes. Use the main calculator and select Iron Butterfly from Quick Start, or build it manually: sell a call and put at the same ATM strike, then buy a higher call and lower put for protection. The P/L chart shows the classic tent shape — high profit at the center, falling toward maximum loss at both wings.
What's the ideal expiration for an iron butterfly?
30–45 days is most common. Shorter expirations collect less premium but have higher gamma risk — the stock can easily move through your strikes in a few days. Longer expirations give more time for things to go wrong.