An iron butterfly is a defined-risk, neutral strategy that collects a large premium by selling at-the-money options, with bought wings that cap the risk. Think of it as an iron condor squeezed so its two short strikes meet at the same price.
Open the Iron Condor calculator →Sell an at-the-money call and an at-the-money put (a short straddle) to collect a rich premium, then buy a further out-of-the-money call and put as protection — the “wings”.
Maximum profit equals the net credit and is achieved only if the stock pins exactly at the short strike at expiration; maximum loss is the wing width minus the credit.
The butterfly collects more premium but has a narrow profit zone centred on one strike. The condor collects less premium but profits across a wider range between two short strikes.
Choose a butterfly when you expect the stock to sit very still into a known date; choose a condor when you expect it to stay within a broader band.
Because the peak profit is at a single point, iron butterflies are usually managed actively — taken off for a partial profit rather than held for the perfect pin.
They benefit from high implied volatility at entry (more credit) followed by calm and time decay; an early volatility spike is the main threat.
Butterfly for a pin-the-strike view with more premium and narrower range; condor for a wider, more forgiving neutral range.
Yes — the bought wings cap the maximum loss at the wing width minus the credit received.
Only if the stock finishes exactly at the short strike at expiration; in practice most traders close early for a partial profit.
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