The Long Iron Butterfly: an intermediate strategy

The Long Iron Butterfly is an intermediate strategy that can be profitable for stocks that are rangebound. It is the combination of a Bull Put Spread and a Bear Call Spread. Often, traders will leg into the Long Iron Butterfly, first trading a Bull Put Spread just below support and then as the stock rebounds of resistance adding a Bear Call Spread, thereby creating the Long Iron Butterfly.

Ideally the stock will remain between the lower and higher strikes, with the maximum profit occuring if the options expire when the stock is priced at the central strike price.

Buy lower strike put + Sell middle strike put, Sell middle strike call + Buy higher strike call = Long Iron Butterfly

Maximum Risk: [Difference in adjacent strikes – net credit]

Maximum Reward: [Net credit received]

Breakeven Down: [Middle strike – net credit]

Breakeven Up: [Middle strike + net credit]

With Long Iron Butterflies, your outlook is direction neutral. You expect little movement in the stock price. It’s safest to trade this strategy on a short-term basis, preferably with one month or less to expiration.


1. Profit from a rangebound stock for no cost and low downside risk.

2. Capped and low risk compared with potential reward.

3. Comparatively high profit potential if the stock remains rangebound.


1. The higher profit potential comes with a narrower range between the wing strikes.

2. The higher profit potential only comes nearer expiration.

3. Bid/Ask Spread can adversely affect the quality of the trade.


ABCD is trading at $25.00 on April 12, 2004. Buy the May 2004 $20 strike put for $0.30. Sell the May 2004 $25 strike put for $1.50. Sell the May 2004 $25 strike call for $2.00. Buy the May 2004 $30 strike call for $0.50.

Net Credit: Premiums sold – premiums bought
Maximum Risk: Difference in adjacent strikes – net credit
5.00 – 2.70 = 2.30
Maximum Reward: Net credit
Breakeven Down: Middle strike – net credit
25.00 – 2.70 = 22.30
Breakeven Up: Middle strike + net credit
25.00 + 2.70 = 27.70
Max RO: 117.39% if the stock is at the middle strike at expiration






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