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Options Strategy
The Iron Butterfly, Explained
If the iron condor bets on a range, the iron butterfly bets on a bullseye. It's a defined-risk way to profit when a stock goes almost nowhere — with a bigger payout and a smaller target.
NoVo Options Trading · 2026
An iron butterfly is a defined-risk, four-leg options strategy that profits when the underlying finishes near a specific price. It's built by selling an at-the-money call and put (a short straddle) and buying a further out-of-the-money call and put as protective "wings" (straddles and strangles).
How it profits
You collect a net credit up front. Maximum profit occurs if price pins exactly at the short strike at expiration — both short options expire worthless and you keep the full credit. The bought wings cap your loss if price moves too far either way, making risk defined (theta decay works for you here).
Butterfly vs condor
The iron butterfly is the tighter cousin of the iron condor (the iron condor). The condor sells out-of-the-money strikes, giving a wide profit range with a smaller credit. The butterfly sells at-the-money strikes, giving a larger credit and payout but a much narrower target — you need price to sit near one point, not just within a zone.
The condor bets on a neighborhood; the butterfly bets on an address. More reward for the tighter aim.
When it fits
The iron butterfly suits a strong neutral view — you expect price to stall near a level, often with elevated implied volatility you expect to fall (implied volatility). Near expiration, options-pinning around big strikes can help it (pinning and max pain). Know the max loss (wing width minus credit) before you open it (credit spreads).
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NoVo is a software tool for market analysis and for executing trades you initiate, not financial advice. This article is general education, not investment advice. Options trading involves substantial risk of loss, up to and including your entire capital. NoVo makes no guarantee of profit, win rate, or performance, and past results do not predict future outcomes. You are responsible for your own broker account, configuration, and trading decisions.