Long Iron Butterfly Options Strategy

Submitted by admin on Fri, 11/26/2021 - 18:43

This method earns money if the underlying stock is outside the iron butterfly's wings after expiration.

This strategy comprises a short call and a long put at the upper strike, a long call and a long put at the middle strike, and a short call and a short put at the lower strike.
Upper and lower strikes (wings) must be equally spaced apart from the center strike (body), and all options must have the same expiration date.

A long straddle with a short strangle is another way to think about this technique.
Additionally, it might be referred to as a bull call spread or a bear put spread.


The investor is aiming for a significant change in the underlying stock, either up or down, throughout the term of the options.


This method earns money if the underlying stock is outside the iron butterfly's wings after expiration.


Profit from a move in either way in the underlying stock.



  • Short 1 AAPL 165 call
  • Long 1 AAPL 160 call
  • Long 1 AAPL 160 put
  • Short 1 AAPL 155 put



Strike-high vs. strike-middle - net premium paid


Premiums paid in full


While the risk/reward profile of the long iron butterfly is similar to that of the short call and short put butterfly, the long iron butterfly is distinguished by the fact that a negative cash flow happens up front and any positive cash flow is unpredictable and would come at some point in the future.

Maximum Loss

Maximum loss occurs if the underlying stock is at the butterfly's body at expiry.
In such instance, all of the options would expire worthless, and the premium paid to open the position would be lost.

Maximum Gain

The biggest profit would be realized if the underlying stock was not in the wings at expiry.
Both calls or both puts would thus be in-the-money.
Profit would be calculated as the difference in price between the body and either wing, less the premium paid to begin the position.


Profit and loss are both quite restricted.
In essence, an iron butterfly's value upon expiration is zero and equal to the distance between either wing and the body.
An investor who purchases an iron butterfly pays a premium between the lowest and maximum values and gains as the butterfly's value reaches the maximum.


The technique is profitable if the underlying stock is either above or below the butterfly's body by the amount of premium paid to open the position at expiration.


Increased implied volatility, all other factors being equal, would benefit this approach.

Time Deterioration

As is the case with most strategies in which the investor is a net buyer of option premium, time will have a detrimental influence on this approach, all other factors being equal.

Assignment Danger

The butterfly's short options can be exercised at any moment, whereas the investor choose when and if to exercise the body.
If the investor exercises the wing option early, he or she can exercise an option at the body (put or call, as applicable) to lock in the maximum gain while continuing to hold the other half of the position, which may still have value.
Thus, early exercise may be beneficial, even if it requires borrowing or financing shares for one work day.

Additionally, bear in mind that a circumstance in which a stock is involved in a restructuring or capitalization event, such as a merger, takeover, spin-off, or special dividend, may radically deviate from usual expectations for early exercise of stock options.

Risk of Expiration

Yes. This strategy is subject to expiry.
If the stock is trading directly above or below either wing at expiry, the investor is unclear whether they will be assigned to that wing.
If the investor is not placed on the wing, they may find themselves unexpectedly long or short the stock on the Monday after expiry, making them vulnerable to an unpleasant weekend move.