Long Iron Butterfly
Description
Buying an at-the-money call and put and selling an out-of-the-money call and put, paying a net debit that pays out most if the underlying moves well away from the middle strike.
Setup
- Buy one at-the-money call and one at-the-money put.
- Sell one out-of-the-money call above and one out-of-the-money put below, same expiry.
Context
The defined-risk, lower-cost cousin of a long straddle, used when a big move is expected but the trader wants to cap the cost and the worst case.
Risk Profile
Maximum loss is the net debit paid, at the middle strike. Maximum gain is the width of either wing minus that debit.
Pros
- Cheaper than a long straddle.
- Defined, capped risk and reward.
- Profits from a move in either direction.
Cons
- Maximum gain is capped even on a very large move.
- Four legs means more commissions and more to manage.
Effect of Time
Time decay works against the position as expiry nears, if the underlying stays close to the middle strike.
Effect of Volatility
A rise in implied volatility helps the position; a drop hurts it.
Look-Alike Strategies
Live Structure
| Position | Right | Ratio | Strike | Expiry | Premium | Fill Price | Est. Fee |
|---|---|---|---|---|---|---|---|
| Short | Put | 1 | $84000.0000 | 24 Sep 2026 | $71.8647 | $59.1827 | $8.9831 |
| Long | Put | 1 | $84500.0000 | 24 Sep 2026 | $211.3665 | $236.7305 | $25.3640 |
| Long | Call | 1 | $84500.0000 | 24 Sep 2026 | $262.0948 | $287.4588 | $25.3640 |
| Short | Call | 1 | $85000.0000 | 24 Sep 2026 | $88.7740 | $76.0920 | $11.0968 |
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 |
|---|---|---|---|
| $83000.0000 | $500.0000 | $187.1774 | +59.8% |
| $84000.0000 | $500.0000 | $187.1774 | +59.8% |
| $84187.1774 breakeven | $312.8226 | $0.0000 | +0.0% |
| $84500.0000 | $0.0000 | -$312.8226 | -100.0% |
| $84546.7100 current | $46.7100 | -$266.1126 | -85.1% |
| $84812.8226 breakeven | $312.8226 | $0.0000 | +0.0% |
| $85000.0000 | $500.0000 | $187.1774 | +59.8% |
| $86000.0000 | $500.0000 | $187.1774 | +59.8% |