How do you calculate iron butterfly max profit and max loss?

Maximum profit equals the net credit received, multiplied by 100 per contract, and is earned only if the stock finishes exactly at the short strike. Maximum loss equals the wing width minus the net credit, multiplied by 100. With $10 wings and a $6.10 credit, max profit is $610 and max loss is $390.

Where are the breakeven points on an iron butterfly?

There are two. The lower breakeven is the short strike minus the net credit, and the upper breakeven is the short strike plus the net credit. With a $100 short strike and a $6.10 credit, the breakevens are $93.90 and $106.10.

What is the difference between an iron butterfly and an iron condor?

An iron butterfly sells both short options at the same at-the-money strike, while an iron condor sells them at separate out-of-the-money strikes. The butterfly collects a much larger credit and has a better reward-to-risk ratio, but its profit zone is narrower and the stock must stay close to one price.

Is an iron butterfly a good strategy?

It suits traders who expect a stock to stay pinned near its current price and want defined risk with a high credit relative to the amount at risk. It is less forgiving than an iron condor because small moves cut into the profit quickly, so it rewards active management rather than set-and-forget trading.

When should you close an iron butterfly?

A common target is 25 to 50 percent of the maximum profit, which is often reached within a couple of weeks if the stock stays near the strike. On the loss side, many traders exit when the loss equals the credit received or when the stock breaks through a breakeven.

Can you lose more than the max loss on an iron butterfly?

Not at expiration, since the long wings define the risk on both sides. The exception is early assignment of an in-the-money short option followed by a gap in the stock before the remaining legs are closed, which can add a small additional loss. Holding enough buying power to handle assignment of 100 shares avoids most of that risk.

Iron Butterfly Calculator & strategy guide

Iron Condors & ButterfliesIntermediateNeutralDefined risk

Sell an ATM straddle and buy OTM wings for a neutral strategy with higher credit than iron condor.

Payoff at expiration

Worked example: XYZ at $100, 45 days to expiration

Profit Loss Breakeven

Max profit: +$610; Net credit received
Max loss: −$390; Wing width − net credit
Breakevens: $93.90 & $106.10; Strike − credit · Strike + credit

The trade · net credit $6.10 a share ($610)

Buy $90 put · $0.90
Sell $100 put · $3.80
Sell $100 call · $4.00
Buy $110 call · $0.80

Price this iron butterfly on SPY with today's chain — then change the ticker, strikes and expiry.

Open in Build

What is an iron butterfly?

An iron butterfly is a four-leg, market-neutral options strategy that combines a short straddle with protective wings. You sell an at-the-money put and an at-the-money call at the same strike, then buy an out-of-the-money put below and an out-of-the-money call above, all in the same expiration. The position is opened for a net credit, and that credit is the maximum profit.

The trade profits when the stock finishes as close as possible to the short strike at expiration, so the straddle expires nearly worthless and you keep most of the credit. Because the short options are at the money, the credit is much larger than an iron condor on the same underlying, but the profit zone is narrower and the full credit is only earned if the stock pins the strike exactly.

The payoff diagram is a peak at the short strike sloping down on both sides to a flat floor beyond each wing. The wings cap the loss at the wing width minus the credit, making it a defined-risk alternative to a short straddle.

Setup

Leg	Strike	Expiry
Buy 1 put	2 strikes OTM	Near
Sell 1 put	At the money	Near
Sell 1 call	At the money	Near
Buy 1 call	2 strikes OTM	Near

Iron Butterfly example

XYZ trades at $100 with 45 days to expiration. You sell the $100 put for $3.80 and the $100 call for $4.00, collecting $7.80 for the straddle. You then buy the $90 put for $0.90 and the $110 call for $0.80, paying $1.70 for the wings. The net credit is $6.10 per share, or $610 per iron butterfly. Both wings are $10 wide.

Stock at expiration	Result
$100 (unchanged)	All four options expire worthless. You keep the full $610 credit, the maximum profit.
$104	The $100 call is $4.00 in the money and costs $400 to close. Profit is $610 minus $400, or $210.
$106.10 or $93.90	Breakeven. The short option is $6.10 in the money, exactly offsetting the credit. P&L is $0.
$112 or $88	One spread is fully in the money. The short option is $12.00 in the money and the long wing is $2.00 in the money, a net $10.00 or $1,000. Minus the $610 credit, the loss is $390, the maximum loss.

Maximum profit is the $610 credit if XYZ finishes exactly at $100. Maximum loss is $390 ($1,000 wing width minus $610 credit) if it finishes below $90 or above $110. Breakevens sit at $93.90 and $106.10, a $12.20-wide profit zone.

When to use an iron butterfly

You expect the stock to stay very close to its current price through expiration.
Implied volatility is high relative to its recent history, so the at-the-money straddle is expensive and a volatility contraction will compress it quickly.
You want a better reward-to-risk ratio than an iron condor and are willing to accept a lower probability of keeping the full credit.
There is no earnings report or other catalyst inside the expiration window that could move the stock out of the profit zone.
Typical entries use 20 to 45 days to expiration, with wings placed roughly one standard deviation away or at the 10 to 20 delta.

Risks to understand

The profit zone is narrow. Even a modest move of 4 or 5 percent can turn a winning position into a loser.
Gamma risk is high because the short options are at the money. Near expiration, small price changes swing the position's value sharply from profit to loss.
A rise in implied volatility inflates the short straddle faster than the wings, producing a mark-to-market loss even if the stock has not moved.
The at-the-money short options are the most likely of any strategy to be assigned early, particularly ahead of an ex-dividend date.
Four legs mean four bid-ask spreads. On an illiquid underlying the slippage can consume a meaningful portion of the credit on both entry and exit.

Managing the trade

Most traders do not hold to expiration. Closing at 25 to 50 percent of the maximum profit captures most of the time decay while avoiding last-week gamma risk.
If the stock drifts toward one wing, the untested side can be rolled closer to the stock to collect additional credit and recenter the position.
Set a loss limit at roughly the same size as the credit or at a fixed percentage of the maximum loss, and close when it is hit rather than hoping for a reversal.
If the stock stays range-bound but the move has taken longer than expected, roll the whole position to a later expiration, ideally for a net credit.
Watch pin risk on expiration day. If the stock is within a dollar or two of the short strike near the close, close the position to avoid uncertain assignment on one or both short options.

Iron Butterfly FAQs

How do you calculate iron butterfly max profit and max loss?: Maximum profit equals the net credit received, multiplied by 100 per contract, and is earned only if the stock finishes exactly at the short strike. Maximum loss equals the wing width minus the net credit, multiplied by 100. With $10 wings and a $6.10 credit, max profit is $610 and max loss is $390.
Where are the breakeven points on an iron butterfly?: There are two. The lower breakeven is the short strike minus the net credit, and the upper breakeven is the short strike plus the net credit. With a $100 short strike and a $6.10 credit, the breakevens are $93.90 and $106.10.
What is the difference between an iron butterfly and an iron condor?: An iron butterfly sells both short options at the same at-the-money strike, while an iron condor sells them at separate out-of-the-money strikes. The butterfly collects a much larger credit and has a better reward-to-risk ratio, but its profit zone is narrower and the stock must stay close to one price.
Is an iron butterfly a good strategy?: It suits traders who expect a stock to stay pinned near its current price and want defined risk with a high credit relative to the amount at risk. It is less forgiving than an iron condor because small moves cut into the profit quickly, so it rewards active management rather than set-and-forget trading.
When should you close an iron butterfly?: A common target is 25 to 50 percent of the maximum profit, which is often reached within a couple of weeks if the stock stays near the strike. On the loss side, many traders exit when the loss equals the credit received or when the stock breaks through a breakeven.
Can you lose more than the max loss on an iron butterfly?: Not at expiration, since the long wings define the risk on both sides. The exception is early assignment of an in-the-money short option followed by a gap in the stock before the remaining legs are closed, which can add a small additional loss. Holding enough buying power to handle assignment of 100 shares avoids most of that risk.