Iron butterfly
Sell an ATM straddle with protective wings for a high-credit pinning bet.
The iron butterfly is a neutral, defined-risk strategy that sells both an ATM call and ATM put (like a short straddle) while buying OTM wings for protection (like an iron condor). It collects maximum premium for a neutral strategy but has a very narrow profit zone , the stock must stay very close to the center strike.
Bias: Neutral (expects minimal movement) Risk profile: Defined Ideal conditions: Very high IV rank, stock expected to pin near current price
How it's constructed
- Sell 1 ATM call
- Sell 1 ATM put (same strike as the call)
- Buy 1 OTM call (upper wing)
- Buy 1 OTM put (lower wing)
- All same expiration, net credit
Setup example
SPY is at $510, IV rank = 75.
- Sell the $510 call → collect $8.00
- Sell the $510 put → collect $7.50
- Buy the $520 call → pay $3.00
- Buy the $500 put → pay $3.20
- Net credit: $9.30 per share ($930 per butterfly)
Max profit, max loss, breakevens
| Metric | Calculation | Value |
|---|---|---|
| Max profit | Net credit | $930 |
| Max loss | Wing width − net credit | $70 per butterfly |
| Upper breakeven | Short strike + net credit | $519.30 |
| Lower breakeven | Short strike − net credit | $500.70 |
Iron butterfly vs iron condor
| Iron butterfly | Iron condor | |
|---|---|---|
| Short strikes | Both ATM (same strike) | Both OTM (different strikes) |
| Premium collected | Maximum | Moderate |
| Profit zone | Very narrow | Wider |
| Max loss | Very small | Larger |
| Best for | Expecting minimal movement | Range-bound movement |
The iron butterfly collects more premium and has lower max loss, but the narrow profit zone requires the stock to stay extremely close to the strike. The iron condor's wider profit zone is more forgiving.
Related terms: Iron condor, short straddle, ATM, defined risk, IV rank, theta
Try it on Stryke: Find very high IV rank candidates for iron butterflies in the Options Screener.
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