Iron Butterfly Calculator

An iron butterfly sells a straddle at the current price, a put and a call at the same strike, and buys a put below and a call above as wings. It brings in a large credit, which is the maximum gain, and the wings cap the loss on each side at the wing width minus that credit. It is a bet that the stock pins close to the middle strike through expiry.

When it is used

Traders sell it when implied volatility is high and they expect a quiet period, often right after an event has passed. Compared with an iron condor it collects more and has a higher maximum profit, but the zone of profit is narrower and the stock is almost always some distance from the peak at expiry, so the realised profit is usually a fraction of the credit.

How it makes and loses money

Time decay and falling implied volatility are the engine; the short straddle loses value quickly as expiry nears if the stock stays put. Any move away from the middle strike costs money at a rate that eases once the stock passes a wing. A volatility spike hurts before the stock has moved.

What to check in the grid

The expiry column shows a sharp peak at the middle strike. The columns a few weeks earlier are much flatter, which is why iron butterflies are usually closed at a target rather than held for the peak. The breakevens tile shows the width of the profit zone.