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Home/Options strategies/Scenario Lab · Iron Butterfly

Neutral strategy · Scenario Lab

Test an Iron Butterfly across possible paths

Market outlook Near one price

Short straddle with protective wings defining risk/reward. Use the lab to see how the position responds before committing to a single forecast.

Scenario Lab

See how the position changes

Move the underlying, clock, and implied volatility independently. Values before expiration use a Black–Scholes estimate; expiration values use intrinsic payoff.

Buy put 1
Sell put 2
Sell call 3
Buy call 4

The catalog’s default strikes and premiums are illustrative. No ticker lookup or market data is used.

Position valuation

Profit / loss at valuation date

Adjust the assumptions above to see the modelled P/L shape move. Green is profit; red is loss.

Estimated payoff by underlying priceSpot —
LossUnderlying price →Profit
Selected scenario—
Estimated P/L before expiration by underlying move and time remaining
UnderlyingToday30 days14 days7 daysExpiration
-15% ——————
-10% ——————
-5% ——————
0% ——————
+5% ——————
+10% ——————
+20% ——————
IV lens

At expiration

Intrinsic payoff checkpoints

Time value has gone to zero. IV no longer changes the result.

Profit or loss at expiration
UnderlyingMoveP/L
—-15%—
—-10%—
—-5%—
—0%—
—+5%—
—+10%—
—+20%—

Model boundary: theoretical estimates use dividend-adjusted Black–Scholes for European exercise or a 100-step binomial estimate for American exercise. Fees, spreads, discrete dividend dates, early assignment behavior, and liquidity effects are excluded. Calculation, not advice.

Why this structure behaves this way

Iron Butterfly is shaped by neutral delta and short vega exposure

Structurally a short straddle with protective wings — same delta-neutral, short-gamma, short-vega profile, but risk is capped. Theta collection is the highest of any defined-risk neutral structure at this width.

This page uses the catalog’s illustrative default legs so you can compare direction, time, and volatility effects in one place. Edit the assumptions above to test a different starting point.