The Iron Butterfly Spread is a neutral strategy and is used when a trader has a neutral out look on the movement of a stock.

Important notice
The information on this web site is provided solely for general education and information purposes and therefore should not be considered complete, precise, or current. Trading in stocks and options involves risk. You can lose money. You should always seek professional advice from your stock broker. We are not stockbrokers and do not make recommendations to buy or sell any stock or option. We provide educational information for your evaluation.

Return to Options Strategy

The Iron Butterfly strategy is very similar in structure to the Iron Condor. 

A combination of 4 option plays will take place; an investor will combine a Bear Call Credit Spread and a Bull Put Credit Spread setting the sold put and the sold call at the same strike price.

XYZ Stock is trading at 25.10

• We would buy a Put option March 20.00 strike price for .30
• We would write a Put option March 25.00 strike price for 1.25
• We have now a credit of 0.95
• We would write a Call option March 25.00 strike price for 1.25
• We would buy a Call option March 30.00 strike price for 0.30
• We also have a credit of 0.95

A total net credit of 0.95 + 0.95 = 1.90

The most profit is realized only if the XYZ stock is at the writing (Sold) Options Strike prices by expiration date.

Losses are limited if XYZ stock moves in one direction or the other.

This is an advance strategy, and one that a use of the option trading strategies calculator can help allot to determine the different spreads and the best positions.

This strategy can be costly in commissions because of the 4 positions and margin costs.