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Iron Butterfly Payoff Calculator

Calculate profit and loss for iron butterfly options strategies with multiple strike prices to analyze risk and reward.

Iron Butterfly Payoff Calculator

Calculate profit and loss for iron butterfly options strategies with multiple strike prices to analyze risk and reward.

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Guide

Understanding iron butterfly options strategies

  • Iron Butterfly consists of: Sell lower put, buy middle put, sell middle call, buy upper call. All options have the same expiration date.
  • Net Premium = (Lower Put Premium + Middle Call Premium) - (Middle Put Premium + Upper Call Premium). Positive net premium means you receive money upfront.
  • Maximum profit occurs when stock is at middle strike at expiration. All options expire worthless, and you keep the net premium received.
  • Maximum loss occurs when stock is at lower put strike or upper call strike. Loss = Strike Width - Net Premium.
  • Breakeven points: Lower Breakeven = Middle Strike - Net Premium per share. Upper Breakeven = Middle Strike + Net Premium per share. Strategy profits between these points.

Frequently Asked Questions

Iron butterfly, options strategies, and risk/reward analysis

What is an iron butterfly?

An iron butterfly is a four-leg options strategy: sell lower put, buy middle put, sell middle call, buy upper call. All options have the same expiration. It profits when stock stays near the middle strike.

How does iron butterfly work?

Iron butterfly profits when stock price stays near the middle strike at expiration. You collect net premium upfront and keep it if stock remains between the breakeven points. Losses occur if stock moves significantly away from middle strike.

What is the maximum profit for iron butterfly?

Maximum profit = Net Premium Received. This occurs when stock is exactly at the middle strike at expiration, as all options expire worthless and you keep the premium.

What is the maximum loss for iron butterfly?

Maximum loss = Strike Width - Net Premium. This occurs when stock is at the lower put strike or upper call strike at expiration. Loss is limited but can be significant if strikes are wide.

When should I use iron butterfly?

Use iron butterfly when you expect low volatility and stock to stay near current price (middle strike). It's ideal for neutral outlooks with limited price movement expectations.

What are the breakeven points?

Lower Breakeven = Middle Strike - Net Premium per share. Upper Breakeven = Middle Strike + Net Premium per share. Strategy is profitable between these points at expiration.

How does iron butterfly compare to regular butterfly?

Iron butterfly uses both puts and calls (mixed), while regular butterfly uses only calls or only puts. Iron butterfly typically has lower cost (can receive net premium) but similar payoff structure.

What are the risks of iron butterfly?

Risks include unlimited loss potential if stock moves significantly away from middle strike, early assignment risk, and time decay working against you if stock doesn't stay near middle strike.

Can I close iron butterfly before expiration?

Yes, you can close all four legs before expiration. Close when you've reached profit target, to limit losses, or if outlook changes. Consider transaction costs when closing early.

How do I choose strike prices for iron butterfly?

Choose middle strike near current stock price. Lower and upper strikes should be equidistant from middle strike. Wider strikes increase max loss but may increase net premium. Balance risk/reward based on volatility expectations.

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Iron Butterfly Payoff Calculator

Calculate profit and loss for iron butterfly options strategies with multiple strike prices to analyze risk and reward.

How to use Iron Butterfly Payoff Calculator

Step-by-step guide to using the Iron Butterfly Payoff Calculator:

  1. Enter your values. Input the required values in the calculator form
  2. Calculate. The calculator will automatically compute and display your results
  3. Review results. Review the calculated results and any additional information provided

Frequently asked questions

How do I use the Iron Butterfly Payoff Calculator?

Simply enter your values in the input fields and the calculator will automatically compute the results. The Iron Butterfly Payoff Calculator is designed to be user-friendly and provide instant calculations.

Is the Iron Butterfly Payoff Calculator free to use?

Yes, the Iron Butterfly Payoff Calculator is completely free to use. No registration or payment is required.

Can I use this calculator on mobile devices?

Yes, the Iron Butterfly Payoff Calculator is fully responsive and works perfectly on mobile phones, tablets, and desktop computers.

Are the results from Iron Butterfly Payoff Calculator accurate?

Yes, our calculators use standard formulas and are regularly tested for accuracy. However, results should be used for informational purposes and not as a substitute for professional advice.