Strategy Overview
Medium RiskAdvancedNeutral
An iron butterfly is a neutral strategy where you sell an ATM straddle and buy OTM wings for protection. It profits most when the stock expires exactly at the short strike.
Max Profit
Net premium received
Max Loss
Width of spread - premium received
Breakeven
Short strike +/- premium received
Probability
~40% win rate
hist. est.
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Example Setup Calculator
$
Credit Received
$250
Max Profit
$250
Max Loss
$250
Breakeven
$97.50 / $102.50
Strategy Components
BUY OTM PUT
Buy OTM put (protection)
SELL ATM PUT
Sell ATM put
SELL ATM CALL
Sell ATM call
BUY OTM CALL
Buy OTM call (protection)
When to Use
- You expect minimal movement
- You have a specific price target
- IV is elevated
- You want higher premium than iron condor
Best Market Conditions
- Very low volatility expected
- High IV rank
- Consolidation pattern
Best Practices
- Use when you have high conviction on a price target
- Manage early if stock moves away from center
- Consider shorter DTE for faster decay
- Use symmetrical wings
Ready to Trade?
Review Iron Butterfly and practice it in paper trading with the school workflow.
Paper Trading