1. What it is
Standard short version: sell a call and put at the center, buy a higher call and a lower put for protection. Reverse every side for a long iron butterfly.
2. Why use it
Concentrate a short-premium position around one target strike.
3. How the numbers work
View example
- Buy 1 × Put · Strike 95
- Sell 1 × Put · Strike 100
- Sell 1 × Call · Strike 100
- Buy 1 × Call · Strike 105
All option legs have the same expiration.
- Option premium received
- 3
- Expiration breakeven
- 97 / 103
- Maximum expiration profit
- 3
- Maximum expiration loss
- 2
- Underlying at expiration 100 → Profit 3
- Underlying at expiration 110 → Loss 2
4. How it changes
Near the center, the short version often has positive theta and negative gamma and vega. Near expiration, small price moves can strongly change delta.
5. What to watch for
For equal wings, maximum expiration loss is wing width minus credit. Maximum profit occurs at one price, not across a broad plateau.
Do not confuse a narrow theoretical peak with an easy exit price. Transaction costs, assignment and moves around the center matter.
Examples use illustrative entry prices and amounts per underlying unit, before costs. Contract amounts require the contract multiplier. Expiration payoffs assume the illustrated legs remain intact; earlier position values and exercise or assignment outcomes can differ.