Iron Butterfly options strategy
An iron butterfly sells an at-the-money straddle and buys protective wings, earning a limited credit when the underlying finishes near the center strike, with defined risk.
How the iron butterfly is built
Buy the 190 put, sell the 200 put, sell the 200 call, and buy the 210 call, for a net credit of about 6.
Profit and loss at expiration
The expiration payoff is calculated as: Profit = net credit − losses on the short 200 strike beyond the wings at 190 and 210.
- Maximum profit
- The net credit received, achieved exactly at the center strike (about $6 per share).
- Maximum loss
- Wing width − net credit (about $4 per share), reached beyond either wing.
- Breakeven
- Center strike ± net credit = 194 and 206.
Worked example
At an expiration price of 200, all intrinsic values are zero and you keep the full credit.
When to use it
Use it when you expect the underlying to pin near a specific price and want a defined-risk, high-probability income trade.
Managing the risk
Risk is capped by the long wings. Maximum profit requires the underlying to finish very close to the center strike.
Frequently asked questions
How is an iron butterfly different from a short straddle?
The long wings cap the loss, converting the straddle’s unlimited risk into a defined-risk position.
Where is maximum profit on an iron butterfly?
Exactly at the center (short) strike, where all options expire worthless except the retained credit.
Model this strategy
Open the free OptCurve calculator to plot the iron butterfly payoff, mark breakevens, and overlay it with other strategies.
Open the P&L calculator