Snapshot
Legs
Buy 1 Low Put + Sell 1 Middle Put + Sell 1 Middle Call + Buy 1 High Call
Outlook
Neutral / Target price at middle strike
Max profit
Net credit received
Max Loss
Difference between middle and outer strikes minus net credit received
A long iron butterfly option strategy is built by buying an out-of-the-money put, selling an at-the-money put, selling an at-the-money call, and buying an out-of-the-money call. This position generates a net credit upfront when opened. Traders use this strategy when they expect the stock price to remain exceptionally stable and close right at the middle strike price at expiration.
The maximum profit equals the net credit received upfront, realized if the stock stays exactly at the middle strike through expiration. The maximum loss is capped at the distance between adjacent strikes minus the net credit received, taking place if the stock moves beyond either of the outer strike prices.
Example
Stock
$100
Trade
- Buy $95 Put for $1.75
- Sell $100 Put for $3.50
- Sell $100 Call for $3.50
- Buy $105 Call for $1.75
→ $3.50 credit ($350)
Breakevens
$96.50 / $103.50
Outcomes
- Stock at $100: +$350 Max Profit
- Stock at $96.50 or $103.50: $0 Breakeven
- Stock ≤ $95 or ≥ $105: -$150 Max Loss