Iron Butterfly Calculator
An iron butterfly is like a narrow iron condor with the short strikes at the same price (ATM). It collects more credit but has a narrower profit zone. Best when you're very confident the stock won't move much.
Price it
Practical example
When to use it
- You have a strong pin thesis — you expect the stock to close very near a specific level at expiration
- Classic setups: weekly options near major gamma walls, max-pain strikes at OpEx, strong technical pivots, known pinning behavior in mega-caps
- Implied volatility is elevated — the richer the ATM premium, the better this structure pays
- You accept a very narrow profit zone in exchange for a larger credit than an iron condor
Risks
- The profit zone is narrow and centered exactly at the short strikes — any meaningful move puts you in losses
- Max loss exceeds max profit — typical structures have tiny edge if managed poorly
- Gamma risk peaks exactly at the short strikes — the closer to expiration, the more explosive the P&L swings
- IV contraction helps, IV expansion hurts (same as iron condor but sharper because ATM vega is high)
The deeper breakdown
How an Iron Butterfly Works
A four-leg structure: sell an ATM call and ATM put (both at the same "body" strike), and buy protective OTM wings above and below. The short strikes being co-located at ATM is what distinguishes this from an iron condor.
Example
AAPL at $195. Sell the $195 put for $3.40 and the $195 call for $3.60. Buy the $190 put for $0.80 and the $200 call for $1.80. Net credit: $4.40 ($440). Max loss = ($5 − $4.40) × 100 = $60.
Iron Butterfly vs Iron Condor
An iron butterfly is the credit-maximizing extreme of the condor family. Choose butterfly over condor only when you have a genuine reason to expect a pin at a specific level, not just a general "sideways" view.
Where Pinning Actually Happens
Pinning is a real phenomenon at monthly/weekly expirations, particularly in heavily-optioned names. It tends to concentrate at strikes with high open interest near spot as dealers delta-hedge gamma. Max-pain analysis (see the Max Pain panel) estimates these strikes. The setup is strongest when:
- Expiration is near and the stock is already close to a key strike
- Open interest is concentrated at that strike
- No known catalyst (earnings, macro event) is likely to unpin it
Key Takeaway
Iron butterflies are the biggest-credit defined-risk vol sale — but only pay off if the underlying pins at your short strike. Use sparingly, with a specific thesis (gamma wall, technical magnet, OpEx pinning), and always manage before expiration to avoid assignment on the ATM shorts.
Calculations are theoretical projections from standard pricing models (Black-Scholes), not predictions. Real fills, slippage, dividends, and volatility shifts will cause outcomes to differ. Not investment advice. Full disclaimer.