Short Iron Butterfly
Description
Selling an at-the-money call and put and buying an out-of-the-money call and put for protection, collecting a net credit that pays out most if the underlying pins at the middle strike.
Setup
- Sell one at-the-money call and one at-the-money put.
- Buy one out-of-the-money call above and one out-of-the-money put below, same expiry.
Context
The defined-risk cousin of a short straddle: same bet that the underlying stays near the current level, with the wings capping the worst case.
Risk Profile
Maximum gain is the net credit received, at the middle strike. Maximum loss is the width of either wing minus that credit.
Pros
- Collects a credit up front.
- Defined, capped risk unlike a short straddle.
- Profits from time decay while the underlying stays near the middle strike.
Cons
- Maximum gain is capped even in the best case.
- Four legs means more commissions and more to manage.
Effect of Time
Time decay favors the position as expiry nears, so long as the underlying stays close to the middle strike.
Effect of Volatility
A drop in implied volatility helps the position; a rise hurts it, since it raises the odds of a move to the wings.
Look-Alike Strategies
Live Structure
| Position | Right | Ratio | Strike | Expiry | Premium | Fill Price | Est. Fee |
|---|---|---|---|---|---|---|---|
| Long | Put | 1 | $84000.0000 | 24 Sep 2026 | $101.3580 | $118.2509 | $12.6697 |
| Short | Put | 1 | $84500.0000 | 24 Sep 2026 | $291.4043 | $278.7346 | $25.3395 |
| Short | Call | 1 | $84500.0000 | 24 Sep 2026 | $236.5019 | $211.1624 | $25.3395 |
| Long | Call | 1 | $85000.0000 | 24 Sep 2026 | $80.2417 | $92.9115 | $10.0302 |
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 | -$153.6935 | -44.4% |
| $84000.0000 | -$500.0000 | -$153.6935 | -44.4% |
| $84153.6935 breakeven | -$346.3065 | $0.0000 | +0.0% |
| $84464.9600 current | -$35.0400 | $311.2665 | +89.9% |
| $84500.0000 | $0.0000 | $346.3065 | +100.0% |
| $84846.3065 breakeven | -$346.3065 | $0.0000 | +0.0% |
| $85000.0000 | -$500.0000 | -$153.6935 | -44.4% |
| $86000.0000 | -$500.0000 | -$153.6935 | -44.4% |