Iron Butterfly
Neutral StrategyUse Zuviz's free options visualizer to build this strategy instantly. Sell an ATM straddle and buy OTM wings for protection. Maximum profit when stock pins exactly at the center strike.
⚡ Key Takeaways
- Market Outlook: Neutral (stock stays at current price) \n
- Max Profit: Net credit received (max at ATM strike) \n
- Max Loss: Width of wings - net credit \n
- Breakeven: ATM strike ± net credit \n
- Best for: Very narrow expected range, high IV environments \n
- Greeks Impact: Positive Theta, negative Vega, near-zero Delta at entry
💡 Visualize this strategy in 10 seconds: Open Zuviz →
📊 Payoff Diagram
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🏗️ Strategy Structure
An Iron Butterfly is an Iron Condor with the short strikes at the same price (ATM).
| Leg | Action | Type | Strike | Premium |
|---|---|---|---|---|
| 1 | Buy | Put | $95 (OTM) | $1.00 |
| 2 | Sell | Put | $100 (ATM) | $3.00 |
| 3 | Sell | Call | $100 (ATM) | $3.00 |
| 4 | Buy | Call | $105 (OTM) | $1.00 |
Net Credit: ($3 + $3) - ($1 + $1) = $4.00/share
🧮 Key Calculations
🎯 When to Use This Strategy
- Expecting no movement: Stock will stay near current price
- High IV environment: Selling ATM options captures maximum premium
- Near expiration: Higher Theta decay on ATM options
- Pin play: Expecting stock to pin at a round number
📈 Greeks Impact
Delta (Δ)
Near Zero - You want the stock to stay still.
Theta (Θ)
Positive - Time decay is your best friend here.
Vega (ν)
Negative - You want volatility to decrease (IV Crush).
⚖️ Pros & Cons
Pros
- High premium collection
- Defined risk
- Benefits from low volatility
Cons
- Narrow profit zone
- Max loss can be high relative to reward
- Assignment risk
📝 Real-World Example
Stock: AMD at $100. Trade: Sell $100 Put/Call, Buy $90 Put/$110 Call.
Credit: $6.00. Max Profit: $600. Max Loss: $400. Breakeven: $94 / $106.