Iron Butterfly Explained - A Short Straddle With Wings
Reviewed by Leon Moyer - Published October 9, 2026 - Last reviewed October 9, 2026
In this lesson
Calculate an iron butterfly's maximum profit, maximum loss and break-evens, and explain the trade-off against an iron condor on the same stock.
An iron butterfly is a four-leg options strategy that sells an at-the-money put and an at-the-money call at the same strike and buys a lower-strike put and a higher-strike call as protection, collecting a credit that is largest if the stock finishes exactly at the middle strike.
Think of it as an iron condor whose two short strikes have been pushed together. With XYZ at $50, the iron butterfly in this lesson collects $323 and risks at most $177, but it only makes money if XYZ finishes between $46.77 and $53.23. The 40/45/55/60 iron condor on the same stock collects $84 and stays profitable from $44.16 to $55.84.
How is an iron butterfly built?
All four options share one expiration:
- Buy an out-of-the-money put (the lower wing).
- Sell an at-the-money put (half of the body).
- Sell an at-the-money call at the same strike (the other half of the body).
- Buy an out-of-the-money call (the upper wing).
The two short options together are a short straddle, a position that profits from a quiet stock but has undefined risk on its own, unlimited if the stock rises. The wings turn it into a defined-risk trade: below the lower wing or above the upper wing, losses stop growing. The middle strike is called the body.
Worked example
Iron butterfly example: the XYZ 45/50/50/55
XYZ trades at $50 with 45 days to expiration. Using the free calculator's model prices at its default 30% implied volatility, rounded to the cent:
- Net credit: $1.96 + $2.24 - $0.37 - $0.60 = $3.23 per share, or $323.
- Maximum profit: $323, only if XYZ finishes exactly at $50.
- Maximum loss: ($5.00 wing - $3.23) x 100 = $177, at or below $45 or at or above $55.
- Break-evens: $50 - $3.23 = $46.77 and $50 + $3.23 = $53.23.
Every $1 that XYZ finishes away from $50 costs $100, until the loss reaches $177.
Illustrative and hypothetical. The ticker and prices are invented for teaching, and the figures exclude commissions, fees, margin interest and taxes, which reduce real results. Past or hypothetical outcomes do not indicate future results.
Iron butterfly versus iron condor at expiration
Hover or tap the chart, or focus it and use the arrow keys, to read any price.
Open this trade in the free calculatorShow as table
What are an iron butterfly's max profit, max loss and break-evens?
- Maximum profit = the net credit, earned only at exactly the body strike.
- Maximum loss = wing width - net credit, times 100, beyond either wing.
- Break-evens = body strike - credit, and body strike + credit.
These match the Options Industry Council's short iron butterfly page. Notice that the maximum profit is a single point, not a range. In practice an iron butterfly almost never earns its full credit at expiration; the realistic goal is to buy it back for less than you sold it, usually well before the last day.
Iron butterfly vs iron condor: which one fits?
Both are neutral, defined-risk credit trades on the same stock and expiration. The difference is where the short strikes sit, and it changes every number:
Iron butterfly or iron condor: credit, risk and room
Credit received
Maximum loss
Width of the profit zone at expiration
The butterfly looks better on credit and on risk, and worse on room. In the calculator's model, XYZ has about a 46% chance of finishing inside the butterfly's break-evens, against about 73% for the condor. Those figures assume 30% volatility is the right forecast; they are model estimates, not predictions. Neither trade is "better". They express different views:
- The iron butterfly says "XYZ will stay very close to $50." It wins more when right and is more often wrong.
- The iron condor says "XYZ will stay somewhere between about $45 and $55." It wins less when right and is right more often.
Both have positive theta and negative vega, so both gain as time passes and lose if implied volatility rises. The butterfly's at-the-money short options carry more of each Greek than the condor's, but its closer wings cancel much of that. At 45 days the butterfly's net theta (+$1.64 a day) and vega (-$5.04) are actually smaller than the condor's (+$2.16 and -$6.43). That flips as expiration nears: with 21 days left and XYZ still at $50, the butterfly earns about $4.18 a day against the condor's $2.44, and its gamma is about 1.7 times as large, so it reacts faster to stock moves near the body.
What are the risks of an iron butterfly?
- The stock does not need to move far. A $3.23 move either way wipes out the profit at expiration.
- Assignment on the body. One of the two short options is almost always in the money near expiration, unless the stock sits exactly on the body strike. The in-the-money short leg can be assigned early, and at expiration it will normally be assigned. If the stock finishes between the body and a wing, that assignment leaves you short 100 shares (from the call) or long 100 shares (from the put), and the wing on that side is out of the money, so it does not offset the stock. The OIC page warns that a close near the body leaves you unsure whether you will be assigned at all.
- Getting filled. Four legs and at-the-money options mean wider total bid-ask spreads. Use a limit order on the net credit rather than a market order.
Because one short leg is usually in the money as expiration nears, many traders close iron butterflies before the final week. Managing an Iron Condor covers the closing decision; the same reasoning applies here.
Check your understanding
You sell a 95/100/100/105 iron butterfly for $3.50. What are the maximum profit, maximum loss and break-evens?
Show answer
Maximum profit is $350, at exactly $100. Maximum loss is ($5.00 - $3.50) x 100 = $150. Break-evens are $96.50 and $103.50.
Why does an iron butterfly collect so much more than an iron condor with the same wing width?
Show answer
It sells at-the-money options, which carry the most time value, instead of out-of-the-money ones. The price of that larger credit is a narrower profit zone.
XYZ finishes at $52 at expiration. What does the 45/50/50/55 iron butterfly make, and which short leg is in the money?
Show answer
It makes $123: the $323 credit minus $2 of intrinsic value on the short 50 call, times 100. The short 50 call is in the money; the 50 put expires worthless.
Key takeaways
- An iron butterfly sells an at-the-money put and call at one strike and buys a put and call wing on either side.
- Maximum profit is the net credit, earned only at the body strike; maximum loss is wing width minus credit, times 100.
- Break-evens sit one credit's width either side of the body.
- Compared with an iron condor it collects more and risks less, but profits across a much narrower range.
- One short leg is usually in the money near expiration, so assignment planning matters.
Common questions
What is the difference between an iron butterfly and an iron condor?
An iron butterfly sells the put and call at the same at-the-money strike, while an iron condor sells them at two different out-of-the-money strikes. The butterfly collects a larger credit with a smaller maximum loss, but profits across a much narrower range.
What is the max profit on an iron butterfly?
The net credit received, times 100, earned only if the stock finishes exactly at the body strike at expiration. On the 45/50/50/55 example sold for $3.23, that is $323 before fees.
Is an iron butterfly a credit or debit spread?
The iron butterfly is opened for a credit, because the two at-the-money options it sells cost more than the two out-of-the-money wings it buys. A long call butterfly with the same strikes has a similar shape but is opened for a debit.
When should you use an iron butterfly?
Traders use it when they expect the stock to stay close to one price, often when implied volatility is high and they expect it to fall. It needs a quieter stock than an iron condor to make money.