What is an iron butterfly?
Updated 6 June 2026 · by Theo Chen
An iron butterfly is a four-leg, defined-risk options trade for a stock you expect to sit still. You sell a put and a call at the same body strike for a large credit, then buy a further-out put and call as wings. Max profit lands if the stock pins that strike at expiration; the wings cap the loss.
Want your exact credit, max loss and both breakevens? Enter the body and wing strikes and the calculator returns the full payoff and a diagram of the tent.
Open the Iron Butterfly Calculator →How is an iron butterfly built?
An iron butterfly is two credit spreads sharing a centre strike — four contracts in all:
- Sell a put at the body strike (at the money).
- Sell a call at the same body strike. Together these are a short straddle — the engine that collects the big credit.
- Buy a put at a lower strike (the lower wing) — caps the downside.
- Buy a call at a higher strike (the upper wing) — caps the upside.
The short straddle in the middle is where the income comes from; the two long wings turn an open-ended short straddle into a defined-risk position. The payoff is a sharp tent peaking at the body.
Max profit, max loss and breakevens
- Max profit = net credit × 100, kept only if the stock pins the body strike at expiration.
- Max loss = (wing width − net credit) × 100, reached if the stock finishes beyond either wing.
- Lower breakeven = body strike − net credit.
- Upper breakeven = body strike + net credit.
You make money only in the band between the two breakevens, and the full credit only at the very peak. That narrow profitable zone is the trade-off for the large credit.
A worked example
With the stock at $100 you sell the $100 put and the $100 call, and buy the $95 put and the $105 call, for a net credit of $3.00. Your wings are $5 wide. If the stock finishes exactly at $100, you keep the full $300 credit. If it finishes below $95 or above $105, you lose the most: (5 − 3) × 100 = $200. Your breakevens are $97 and $103 — the stock has to land in that band for the trade to make money.
Sell the $100 put and $100 call (red), buy the $95 put and $105 call (green) for a $300 net credit. Max profit $300 right at $100; the most you can lose is $200 beyond the wings; breakevens $97 and $103.
When an iron butterfly makes sense
Reach for an iron butterfly when you expect a stock to finish very near a specific price, ideally when implied volatility is high and likely to fall. It is a high-reward, lower-probability neutral trade — size it small. If you want a wider, more forgiving profit zone for a smaller credit, an iron condor spreads the short strikes apart, and you can weigh the two directly in Iron Condor vs Iron Butterfly.
The bottom line
An iron butterfly trades a wide profit zone for a big credit - you collect the most premium of the neutral spreads, but the full profit only lands if the stock pins the body strike, making it a high-reward, lower-probability bet best sized small.
Frequently asked questions
What is an iron butterfly?
An iron butterfly is a four-leg, defined-risk options trade for a stock you expect to sit still. You sell a put and a call at the same middle (body) strike — a short straddle that brings in a large credit — then buy a further-out put and call as protective wings that cap the risk. You keep the most money if the stock pins the body strike at expiration.
What is the maximum profit and loss on an iron butterfly?
Maximum profit is the net credit you collect, times 100, kept only if the stock finishes exactly at the body strike: net credit × 100. Maximum loss is the wing width minus that credit, times 100: (wing width − net credit) × 100, reached if the stock finishes beyond either wing. Both are capped and known the moment you open the trade.
What is the difference between an iron butterfly and an iron condor?
Both are four-leg, defined-risk credit trades, but the iron butterfly sells its put and call at the same strike, while the iron condor spreads them apart. The butterfly collects a larger credit and has a higher peak profit, but a single pinpoint at the body; the condor collects less but keeps its profit across a wide range. The butterfly is the higher-reward, lower-probability of the two.
What is the difference between an iron butterfly and a long butterfly?
They have the same tent-shaped payoff but are built differently. A long butterfly is a debit trade using all calls or all puts; you pay a small premium and profit if the stock pins the body. An iron butterfly is a credit trade using both a put spread and a call spread; you collect premium up front. The economics are nearly identical — the choice is usually about commissions and which is priced better.
When should you use an iron butterfly?
Use one when you have a strong view that a stock will finish very close to a specific price — often into an expiration with elevated implied volatility you expect to fall. The large credit rewards a precise, neutral forecast. Because the full profit only lands in a narrow band around the body strike, it is a high-reward, lower-probability trade best sized small.
Related questions
- What is the difference between an iron butterfly and an iron condor?
- How is a long butterfly spread different from an iron butterfly?
- What is a straddle, the short version at the body?
- What is the expected move and how do I place my wings around it?
Related tools and guides
Price your wings in the Iron Butterfly Calculator, compare the wider-zone version with the Iron Condor Calculator, or see the debit-based cousin in What Is a Butterfly Spread? Map all four legs in the Payoff Diagram Builder.
Educational explainer only — not financial advice. Examples are illustrative and exclude commissions, early assignment and dividends. Confirm the mechanics and size positions to your own risk tolerance.