Neutral options strategy
Iron butterfly
Sell an at-the-money straddle and buy wings to cap the risk. Bigger credit than a condor, narrower profit zone.
NeutralHigh IV (selling rich premium)Defined riskLevel 5 · Advanced structures
Iron butterfly payoff
An example on a $100 stock with 30% implied volatility. The dashed line is the profit or loss at expiry; the solid line is what the position is worth today.
The trade
Buy 1 $91 put · 30 days · $0.52
Sell 1 $100 put · 30 days · $3.26
Sell 1 $100 call · 30 days · $3.59
Buy 1 $109 call · 30 days · $0.80
Net credit $553
Max profit$553
Max loss−$347
Break-evens$94.47 · $105.53
Chance of profit48%
How it works
- Max profit if the stock ends exactly at the middle strike.
- Max loss = wing width minus credit.
When to use it
- You expect the stock to pin near today's price, typically after a big event when IV is still high.
Managing the trade
- Rarely held to expiry: close at 25-35% of max profit.
Risks
- Any decent move erodes the profit quickly.