Iron Butterfly

A tighter iron condor with both short strikes at the same price — more premium, narrower profit zone.

An iron butterfly is an iron condor whose short call and short put share the same strike (ATM). You collect a larger credit for a narrower profit zone.

Market outlook

Neutral with conviction that the stock will pin near a specific price by expiry (often the current price), and/or that IV will contract.

Construction (four legs)

• Sell call and put at the center strike $K$ (the "body").
• Buy call at $K + W$ and buy put at $K - W$ (the protective "wings", width $W$).
• Net credit $C$ (larger than a comparable condor).

Risk / reward

• Max profit: $C$, achieved if the stock closes exactly at $K$.
• Max loss: $W - C$
• Breakevens: $K - C \quad \text{and} \quad K + C$

Condor vs. butterfly

• Butterfly: higher credit, higher probability of some loss, narrow win zone — a precision bet on the pin.
• Condor: lower credit, wider win zone — more forgiving.

Risks & management

• The narrow profit tent means small moves matter; gamma risk near expiry is significant.
• Frequently managed early (take partial profit) rather than held into the final days.