Reverse Iron Butterfly Calculator
A reverse iron butterfly (long iron butterfly) buys the at-the-money call and put and sells an out-of-the-money call and put as wings. It is a defined-risk, long-volatility trade: you pay a net debit and profit if the stock makes a decent move in either direction, with both the maximum profit and loss capped.
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Key characteristics
- Buy the ATM call + put, sell an OTM call + put (the wings): net debit.
- Profits on a move either way; loses if the stock pins the centre strike.
- Max loss = the debit; max profit = wing width − debit, reached at a wing.
- The tighter, sharper cousin of the reverse iron condor (single centre strike).
When to use a reverse iron butterfly
Open it when you expect a move but want a single, well-defined target on each side and the lowest cost — the sold wings finance much of the long straddle. It is the long-volatility, defined-risk answer to "I think this stock breaks out but I do not want unlimited cost".
Versus a reverse iron condor it has one centre strike instead of two, so it costs less and pays the most for a precise move to a wing, but its profitable zone is narrower.
The risk and the catch
The enemy is a flat stock. If price sits at the centre strike at expiration, the long straddle expires worthless and you lose the full debit — the defined maximum loss. Time decay works against you, so the move must come before expiration.
Because you are long volatility, avoid entering when implied volatility is already high (for example just before earnings): the post-event IV crush can erase the value even if the stock moves.
Calculate it live
Use the free OptionProfit Reverse Iron Butterfly calculator to load a live option chain, build the trade, and instantly see the payoff chart, breakevens, probability of profit, Greeks and a Monte Carlo simulation of outcomes.
- Long ATM straddle + short OTM wings = defined-risk long volatility.
- Max loss = the debit (at the centre); max profit = wing width − debit (at a wing).
- Sharper and cheaper than a reverse iron condor, with a narrower profit zone.
- Avoid opening when IV is already inflated — the move must beat the IV crush.
Frequently asked questions
How is this different from a normal iron butterfly?
It is the exact opposite. A normal iron butterfly sells the ATM straddle for a credit and profits from a quiet stock; the reverse buys it for a debit and profits from a move in either direction.
Reverse iron butterfly vs reverse iron condor?
The butterfly uses a single centre strike, so it is cheaper and pays the most for a precise move, but has a narrower profit zone. The condor spreads the centre into two strikes for a wider — but pricier — profit band.
When do I lose the maximum?
When the stock finishes exactly at the centre strike, so both long options expire worthless. The most you can lose is the net debit you paid.
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