When Should You Use This Strategy?
Expect movement, fear body
Who Benefits Most?
Volatility traders
Position Setup
The Reverse Iron Butterfly consists of the following legs:
- Buy 1 100 strike put at $5 premium
- Sell 1 90 strike put at $2 premium
- Buy 1 100 strike call at $5 premium
- Sell 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 reverse 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: $400 per default position
Maximum Loss: $600 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
Modest net debit
How to Manage the Position
Close at 50% profit on first side
- 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 = harder to hit
- Four legs
Common Variations
The default setup above is one version of the reverse iron butterfly. Traders adjust strike placement to trade off cost, probability, and payout:
Wider wings
Space the outer long strikes further from the body strike for a larger maximum payout.
Key difference: Higher max profit potential at a higher net debit.
Best for: Traders expecting a very large move who want more payout per contract.
Tight-body reverse iron butterfly
Keep the body strike very close to the current stock price.
Key difference: Maximizes sensitivity to any move away from the current price, since the danger zone is centered right where the stock sits.
Best for: Traders who believe the stock will not stay pinned near its current level.
Frequently Asked Questions
How is a reverse iron butterfly different from a reverse iron condor?
Comparisons
The reverse iron condor has a wider flat zone between two separate inner strikes; the reverse iron butterfly compresses that to a single body strike, making it more sensitive to the smallest move away from that price.
What's the worst outcome for this trade?
Greeks & Risk
The stock finishing exactly at the body strike at expiration, where all four legs lose the most value to time decay and provide the least intrinsic value.
Why would I choose this over a long straddle?
Comparisons
The wings define and cap the maximum loss precisely, unlike a straddle's exposure being limited only to the premium paid without a hard floor from short options — though the straddle offers more unlimited upside.
When is this strategy typically used?
When to Use
Ahead of binary events where a stock is expected to move sharply away from its current price in either direction, with a defined, known maximum risk and reward.
Model Before You Trade
Every strategy performs differently based on entry price, strike selection, and premium levels. Use the interactive Reverse 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.