Iron butterfly
Definition · Level 3 · Spreads & short options
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Credit tent: sell an ATM straddle and buy an OTM strangle as protection (sell 100P + 100C, buy 95P + 105C). Same payoff shape as a long fly on those strikes.
Example
Sold for 3.80 with 5-wide wings → max profit $380, max loss $120.
Where Tradecraft teaches it
Level 3 · Spreads & short options, in the lesson “Butterflies: targeting a price”: Body and wings, the lottery-like payoff, iron flies, short flies, broken-wing and unbalanced flies.
Related terms
- BodyThe middle strike of a butterfly, short in a long fly — where a long fly earns the most at expiration.
- Broken-wing butterflyA 1×2×1 fly with one wing further from the middle than the other (e.g. +95C −2×100C +110C); cuts or removes risk on the near-wing side and adds it…
- Long ButterflyBuy one low strike, sell two middle, buy one high (1×2×1).
- PinningAn observed, not guaranteed, tendency of a stock to settle near a strike with very large open interest into expiration — most likely when dealers…
- Short ButterflyThe reverse fly: sell the wings, buy two of the body.
- Unbalanced ButterflyA butterfly whose wings have unequal quantities — here +1 / −3 / +2.