Iron Butterfly
Four-contract neutral strategy for pinpoint price targets
Definition
An iron butterfly is a neutral options strategy using four contracts at three strike prices: sell an at-the-money call and put (same strike), buy a further out-of-the-money call, and buy a further out-of-the-money put. It profits when the underlying asset stays near the middle strike at expiration. It has a lower maximum profit than an iron condor but requires the price to stay closer to the center strike. It is sometimes called a "reverse iron butterfly" when bought rather than sold.
Example
With SPX at 5,000, you sell a 5,000 call and 5,000 put, then buy a 5,050 call and 4,950 put. Net credit received: $15. If SPX closes exactly at 5,000 at expiration, both the call and put you sold expire worthless and you keep the full $15 credit. If SPX moves 30+ points, you lose money.
Related Terms
Frequently Asked Question
What is an iron butterfly?
An iron butterfly sells an ATM call and put, then buys OTM wings for protection. It profits when price stays near the center strike. Similar to an iron condor but requires less movement — and smaller price range.
APA Citation
Last updated:
· Source: VixShield Trading Glossary — From SPX Mastery by Russell Clark
⚠️ Not financial advice. This definition is educational content from the SPX Mastery book series by Russell Clark (VixShield). Past performance is not indicative of future results. Trading options involves substantial risk of loss and is not appropriate for all investors. Always paper trade before risking real capital.