Diagonal Butterfly
Description
A short iron butterfly whose protective wings sit in a later expiry than the body, trading a wider near-term profit zone for extra complexity.
Setup
- Sell a near-term at-the-money call and put.
- Buy a longer-dated, out-of-the-money call above and put below for protection.
Context
Used like a short iron butterfly -- betting the underlying pins near the current level through the near-term expiry -- while the later-dated wings are cheaper and decay slower, changing the trade's risk profile over time.
Risk Profile
Maximum gain is the net credit received, at the middle strike at the near-term expiry. Maximum loss is bounded by the longer-dated wings, though it depends on their remaining value rather than a fixed number.
Pros
- Collects a larger credit than a same-expiry iron butterfly, since the wings are cheaper further out.
- Defined risk thanks to the longer-dated wings.
- Profits from near-term time decay.
Cons
- Risk at the near-term expiry is less precisely defined than a same-expiry iron butterfly.
- Four legs across two expiries requires closer management.
Effect of Time
Time decay favors the position as the near-term expiry approaches, so long as the underlying stays close to the middle strike.
Effect of Volatility
A drop in near-term implied volatility relative to the back month benefits the position.
Look-Alike Strategies
Live Structure
| Position | Right | Ratio | Strike | Expiry | Premium | Fill Price | Est. Fee |
|---|---|---|---|---|---|---|---|
| Long | Put | 1 | $83500.0000 | 25 Sep 2026 | $346.7862 | $363.7026 | $25.3746 |
| Short | Put | 1 | $84500.0000 | 24 Sep 2026 | $219.7908 | $194.4303 | $25.3605 |
| Short | Call | 1 | $84500.0000 | 24 Sep 2026 | $257.8292 | $228.2422 | $25.3602 |
| Long | Call | 1 | $85500.0000 | 25 Sep 2026 | $338.3280 | $355.2444 | $25.3746 |
Estimated Cost to Assemble
An estimate of what entering this structure right now would really cost: filling every leg by crossing the spread (the ask when buying, the bid when selling) instead of at the mid-price, plus an estimated exchange fee. Real fees and fills can differ from this estimate.
Payoff & Greeks vs. Underlying Price
The Greeks curves are a Black-Scholes model using each leg's current implied volatility, holding time to expiry fixed -- not live exchange data at every price, which only exists at the current price (dashed line).
Payoff at Expiration
This structure's value and profit/loss at expiration, at a handful of specific prices: every leg's strike, every breakeven, the current spot, and the chart's own range.
| Underlying Price | Value at Expiration | Profit / Loss | Return on Cost |
|---|---|---|---|
| $81500.0000 | -$1000.0000 | -$1207.4941 | -581.9% |
| $83500.0000 | -$1000.0000 | -$1207.4941 | -581.9% |
| $84500.0000 | $0.0000 | -$207.4941 | -100.0% |
| $84534.9300 current | -$34.9300 | -$242.4241 | -116.8% |
| $85500.0000 | -$1000.0000 | -$1207.4941 | -581.9% |
| $87500.0000 | -$1000.0000 | -$1207.4941 | -581.9% |