When Should You Use This Strategy?
Want high probability; stock settles near one price
Who Benefits Most?
Advanced theta traders
Position Setup
The Iron Butterfly consists of the following legs:
- Buy 1 90 strike put at $2 premium
- Sell 1 100 strike put at $5 premium
- Sell 1 100 strike call at $5 premium
- Buy 1 110 strike call at $2 premium
Payoff at Expiration
The chart below shows profit and loss across a range of underlying prices for the default iron butterfly setup. Open the interactive calculator to change strikes, premiums, and quantities and see the shape update live.
How Profit and Loss Work
Maximum Profit: $600 per default position
Maximum Loss: $400 per default position
Break-even Points: $94 / $106
Timing & Time Horizon
30–45 days
Most traders enter this strategy 30–60 days before their expected move, allowing enough time for the position to develop while avoiding excessive time decay on shorter-dated options.
Capital Requirements
Moderate margin
How to Manage the Position
Close at 50% profit
- Monitor the position daily, especially as it approaches profitability
- Set clear profit targets and exit rules before entering
- Consider closing early to lock in gains rather than waiting for max profit
- Be prepared to cut losses if the thesis is wrong
Key Risks & What to Watch
- Tight wings hard to execute
- Very narrow profit zone
Common Variations
The default setup above is one version of the iron butterfly. Traders adjust strike placement to trade off cost, probability, and payout:
Wide-wing iron butterfly
Place the protective long wings further from the body strike.
Key difference: Larger maximum loss but more room before the loss cap is fully realized.
Best for: Traders who want more downside cushion around the tight body strike.
Narrow-wing iron butterfly
Place the protective long wings close to the body strike.
Key difference: Smaller maximum loss and less capital at risk, but also a smaller net credit collected.
Best for: Traders who want the tightest possible defined risk on a pinning bet.
Frequently Asked Questions
How is an iron butterfly different from an iron condor?
Comparisons
An iron butterfly sells both the call and put at the same body strike for maximum premium, while an iron condor uses separate short strikes for a wider, lower-premium profit zone.
Why is the profit zone so narrow?
Greeks & Risk
Since both short options share the same strike, the stock must land very close to that exact price at expiration to realize the maximum profit — moving even modestly away erodes it quickly.
What's the maximum I can lose on an iron butterfly?
Setup
The width of one wing minus the net credit received, realized if the stock finishes beyond either long strike at expiration.
When is this strategy most attractive?
When to Use
When implied volatility is elevated and you have a strong view the stock will settle very close to a specific price by expiration, such as after a known catalyst has passed.
Model Before You Trade
Every strategy performs differently based on entry price, strike selection, and premium levels. Use the interactive Iron Butterfly calculator to model the payoff with your expected entry, strikes, and premiums before committing capital.
Educational information only. This guide explains how the strategy works mathematically and typically behaves. It is not investment advice, and past performance does not guarantee future results. Options trading involves significant risk, including the potential loss of premium paid. Paper trade or use small positions while learning.