Iron Butterfly: High Premium Neutral Strategy 2026
The iron butterfly is a neutral options strategy that's like an iron condor with the short strikes merged at a single ATM price. By selling both an ATM call and an ATM put at the same strike, you collect maximum premium — but your profitable range is narrower. It's the high-risk, high-reward cousin of the iron condor.
What Is an Iron Butterfly?
An iron butterfly consists of four legs: sell 1 ATM call, sell 1 ATM put (both at the same strike), buy 1 OTM call (higher strike), and buy 1 OTM put (lower strike). The long options are the "wings" that define your maximum risk.
The key difference from an iron condor is that both short strikes are at the same price — right at the money. This means you collect significantly more premium (since ATM options have the most extrinsic value), but the stock needs to stay very close to that center strike for maximum profit.
Think of the iron butterfly as a more aggressive iron condor. You're betting the stock stays pinned near one specific price. The wider your wings, the more risk you take on but the more premium you collect.
Example: SPY is at $500. You sell the $500 call for $6.00, sell the $500 put for $6.00, buy the $510 call for $2.00, and buy the $490 put for $2.00. Total credit: $6 + $6 - $2 - $2 = $8.00 ($800). Wing width: $10. Max risk: $10 - $8 = $2.00 ($200). If SPY closes at exactly $500, both short options expire worthless and you keep the full $800. If SPY moves beyond $508 or below $492, you start losing money.
When to Use It
- When you expect a stock or ETF to stay pinned near a specific price
- On index options (SPX, SPY) near expiration when the market seems stuck
- When implied volatility is elevated and you want to sell maximum premium
- On expiration day or the day before — "0 DTE" iron butterflies are popular on SPX
- When you want a higher premium but are willing to accept a narrower profit zone vs. an iron condor
How to Set It Up
1. Choose the center strike — this should be at or near the current stock price 2. Sell 1 call at the center strike 3. Sell 1 put at the center strike 4. Buy 1 call at the center strike + wing width (e.g., +$10) 5. Buy 1 put at the center strike - wing width (e.g., -$10) 6. Common wing widths: $5-$10 for stocks, $10-$25 for indexes 7. Close at 25-50% of max profit — don't hold to expiration hoping for the exact pin 8. Typical DTE: 14-45 days, or even 0 DTE for SPX
Risk & Reward
Max profit: Total credit received. Occurs when the stock closes exactly at the center strike. In the example: $800. | Max loss: Wing width - credit received. In the example: $10 - $8 = $2.00 ($200). | Breakeven: Center strike +/- credit received. In the example: $508 on the upside, $492 on the downside.
Best Brokers for This Strategy
Tastytrade is excellent for iron butterflies with its one-click four-leg entry and free-to-close pricing — critical since you'll want to close early to capture 25-50% of max profit. IBKR has the best SPX options pricing for 0 DTE iron butterflies. thinkorswim/Schwab provides the best probability tools for selecting strike prices. See our best options brokers guide.
Not financial advice. Always do your own research.
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