Iron Butterfly

Iron condors and iron butterflies are both defined-risk, range-bound options strategies built from four legs: a put spread and a call spread combined into one position. The skeleton is the same. What’s different is where you put the short strikes, and that one choice explains almost everything about how each trade behaves. The Shared Structure Both strategies are built the same way: Sell a put, buy a further OTM put (a credit put spread) Sell a call, buy a further OTM call (a credit call spread) Combined, these four legs create a position that profits if the underlying stays within a defined range through expiration, with losses capped on both sides no matter how far the stock moves. For a full breakdown of the individual legs and payoff mechanics, see Iron Condor 101 and Iron Butterfly 101. ...

Some stocks seem glued to one price. An iron butterfly is built for those: you sell a call and a put at the same strike, right where the stock is trading, and buy protection on both sides. You collect a big credit, and you keep the most of it if the stock barely moves. How it’s built Four options on the same stock, with the same expiration: Sell an at-the-money call. Buy a higher-strike call to cap the risk on a rally. Sell an at-the-money put at the same strike as the call. Buy a lower-strike put to cap the risk on a drop. It’s an iron condor with the two short strikes pushed together. Because at-the-money options are the most expensive, the credit is much bigger. The catch is that the full profit only comes if the stock finishes right at that strike. ...