Iron Butterfly Calculator

What Is an Iron Butterfly?

An iron butterfly is built around an ATM straddle with protective wings on both sides. The short iron butterfly sells the ATM straddle and buys the wings; the long iron butterfly does the inverse.

Short Iron Butterfly (Credit)

The short iron butterfly is a net credit strategy. You sell an ATM put and ATM call at the same strike (short straddle), then buy an OTM put below and an OTM call above for protection. You profit when the stock stays near the short strike as time passes, ideally pinning near expiration.

Short Iron Butterfly Metrics

• Max Profit: Net credit received × 100 × number of contracts. Achieved when the stock pins exactly at the short strike at expiration—rare, so don't expect max profit.
• Max Loss: (Widest spread width − net credit) × 100 × number of contracts. Occurs when the stock closes at or beyond either long strike at expiration.
• Lower Breakeven: Short strike − net credit.
• Upper Breakeven: Short strike + net credit.
• Ideal When: Strongly neutral, expecting the stock to pin near a specific price. The position can profit even if the stock just passes through the short strike near expiration.

How to Read the Iron Butterfly P/L Chart

The cyan line (T+0) shows theoretical P/L at entry. Near the short strike, the position has positive theta and profits from time passing. Near the wings, this reverses. Where T+0 sits relative to expiration reveals your theta: T+0 below expiration = positive theta (time helps), T+0 above expiration = negative theta (time hurts).

The orange line (halfway to expiration) shows theoretical P/L at half the time to expiration.

The white line (expiration) shows the expiration P/L for the position. If the stock finishes exactly at the short strike, all four options expire worthless and you keep the full credit. As the stock moves away from the short strike, profits decline. Beyond the long strikes, you hit max loss—but it's capped.

When to Trade a Short Iron Butterfly

Short iron butterflies work best when you expect the stock to pin near a specific price.

If you think a $100 stock will trade close to $100 for the next month—or at least be near $100 in a month—a short iron butterfly centered at $100 lets you profit from that stability with more profit potential than an iron condor. The tradeoff is a narrower profit zone.

Most traders sell iron butterflies with 30-45 DTE or less and close at 10-25% of max profit.

Why Max Profit Is Hard to Capture

A short iron butterfly is built around a short straddle—an ATM put and ATM call sold at the same strike. ATM options hold the most extrinsic value, and ATM options decay fastest right before expiration. This means you're unlikely to see high percentages of max profit unless the stock is near the short strike very close to expiration.

Long Iron Butterfly (Debit)

The long iron butterfly is the inverse—you buy an ATM straddle and sell an OTM call and OTM put to reduce your net debit and risk. You profit when the stock makes a big move in either direction.

Long Iron Butterfly Metrics

• Max Profit: (Widest spread width − net debit) × 100 × number of contracts. Achieved when the stock closes at or beyond either short strike at expiration.
• Max Loss: Net debit paid × 100 × number of contracts. Occurs when the stock closes exactly at the long strike at expiration.
• Lower Breakeven: Long strike − net debit.
• Upper Breakeven: Long strike + net debit.
• Ideal When: Expecting a big move but unsure of direction.

Long Iron Butterfly vs Long Straddle

A long straddle has unlimited profit potential but costs more. A long iron butterfly caps your profits but costs less—closer breakevens, smaller max loss.

Short Iron Butterfly vs Short Iron Condor

Both are neutral strategies that profit from range-bound stocks. The iron butterfly has the short put and short call at the same strike (straddle), creating a narrower profit zone but collecting more credit.

The iron condor separates the short strikes for a wider profit zone and a smaller credit. Choose the iron butterfly when you're confident the stock will pin near a specific price; choose the iron condor for a wider profit zone and higher win rate, but with less profit potential per trade.

Iron Butterfly Early Assignment Risk

Any short option can be assigned early, typically when deep ITM near expiration or when an ITM short call approaches an ex-dividend date. If the short put is assigned, you buy 100 shares at the strike price. If the short call is assigned, you sell (short) 100 shares at the strike price. If assigned, your max loss doesn't change—the long options still cap your risk. Only your position structure changes.

Why Early Assignment Is Less Likely Than You Think

Even though you will almost always have an ITM short option when selling iron butterflies, you will not automatically get assigned. Early assignment only becomes likely when a short ITM option has little extrinsic value remaining (or it's an ITM call with extrinsic less than an upcoming dividend).

If you exit iron butterflies 1-2 weeks before expiration, early assignment risk drops dramatically. And the closer the stock remains to your short strike, the more extrinsic value will exist in the short options, significantly reducing early assignment risk.

Expiration vs Early Assignment

Early assignment is different from expiration assignment. If you hold through expiration and get assigned on a short option while an offsetting long option expires OTM, you'll end up with a stock position without the long options protecting your loss potential.

For example, if you're short the 200 straddle and long the 180 put and 220 call, and the stock closes at $195 at expiration, only the short put will get assigned. You will end up with 100 shares of stock per contract that expired ITM. Following expiration, you will only have the stock without any long puts protecting the downside.