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OptionsMath

Iron Butterfly Calculator

Iron butterfly profit or loss equals net credit plus long put value minus short put and short call obligations plus long call value.

Expiration scenarios

Solution

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Iron Butterfly Formula

Maximum profit is the net credit at the short strike. Break-evens are the middle strike minus and plus credit.

Worked Examples

Load these examples to compare common iron butterfly payoff outcomes.

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What if stock finishes at the short strike?

The body options expire with little intrinsic value and the wings are out of the money.

  • Net credit is retained.
  • All intrinsic obligations are zero at the short strike.
  • Profit equals the initial credit.

Result: the iron butterfly earns its maximum profit.

Pin risk and assignment decisions are not modeled.

How It Works

An iron butterfly sells a same-strike call and put, then buys protective wings outside that strike. It collects a credit and has defined risk.

Example Problem

Buy a $90 put, sell the $100 put and $100 call, and buy a $110 call for a net $4 credit.

  1. Calculate net credit.
  2. Value all four legs at expiration.
  3. Find break-evens by subtracting and adding credit to the short strike.
  4. Compare credit with wing width for max loss.

The ideal expiration is near the short strike.

Key Concepts

Iron butterflies are short-volatility trades with defined risk and a narrow maximum-profit zone.

Applications

  • Comparing iron butterfly vs. iron condor.
  • Sizing max loss on neutral premium trades.
  • Finding break-even range.

Common Mistakes

  • Forgetting one of the protective wings.
  • Using unequal quantities.
  • Assuming max profit before expiration.

Frequently Asked Questions

What does the Iron Butterfly Calculator calculate?

It calculates expiration profit or loss, break-even levels, maximum profit or loss where they are defined, and payoff chart data from manually entered prices and premiums.

Does this calculator need live option quotes?

No. Enter the stock price, strikes, premiums, and contracts yourself. The calculator models expiration payoff from those inputs.

Does this model early assignment or changing implied volatility?

No. It is an expiration payoff calculator. It does not model commissions, fees, early assignment, exercise decisions, taxes, or mark-to-market pricing before expiration.

Why can payoff before expiration differ from this result?

Before expiration, option prices still include time value and implied volatility. This calculator focuses on intrinsic value at expiration.

Reference: Options Industry Council strategy education and standard expiration payoff definitions.

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