Iron Butterfly
Sell an ATM call and an ATM put at the same strike, then buy an OTM call and OTM put for protection. Similar to an iron condor but with the short strikes at the same price, producing more premium and a narrower profit zone.
Payoff Diagram
How to Set Up This Trade
Sell an ATM call and an ATM put at the same strike price. Buy an OTM call and an OTM put at equal distances from the center strike. All four options share the same expiration.
Trade Setup — 4 Legs
When to Use This Strategy
You expect the stock to stay very close to a specific price through expiration. Best in high-IV environments with an expected IV crush (e.g., post-earnings).
Tips from the Pros
- 1
The iron butterfly collects more premium than an iron condor but has a narrower profit range.
- 2
Great for earnings plays when you expect IV crush and a pin near the current price.
- 3
Consider taking profit at 25-50% of max profit — reaching full max profit requires a perfect pin.
Quick Reference
Max Profit
Limited to the total net credit received. Maximum when the stock closes exactly at the short strike at expiration.
Max Loss
Width of one wing minus total credit received (per share).
Breakeven
Upper breakeven: short strike + total credit. Lower breakeven: short strike - total credit.
Best IV Environment
High IV
Time Decay (Theta)
Helps (positive theta)
Risk Level
Medium RiskLearn More
Our courses cover this strategy with real trade examples and live market analysis.
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Iron Condor
Sell an out-of-the-money call spread and an out-of-the-money put spread simultaneously. You profit if the stock stays within a range. This is one of the most popular income-generating strategies.
Short Straddle
Sell an ATM call and an ATM put at the same strike price and expiration. You collect maximum premium and profit if the stock stays near the strike. This is a high-premium, high-risk strategy.
Short Strangle
Sell an OTM call and an OTM put at different strike prices. Similar to the short straddle but with a wider profit range and lower premium collected. Still an undefined-risk strategy.