Iron Condor / Butterfly Strategy Payoff Calculator
Analyze profit/loss for iron condor and butterfly spreads at expiry across price scenarios.
Multi-Leg Strategy Parameters
Analyze Iron Condor or Iron Butterfly payoffs at different expiration prices
Formulas Used
Iron Condor:
Max Profit = Net Premium Received
Max Loss = Wing Width - Net Premium
Breakevens:
Lower BE = Short Put Strike - Premium | Upper BE = Short Call Strike + Premium
Iron condors and butterflies are defined-risk strategies that profit from range-bound markets. Max profit is achieved when the underlying stays within the profit zone.
An **iron condor** is a four-leg options strategy that combines a bull put spread and a bear call spread. It profits when the underlying stays within a defined range.
Construction
**Buy OTM Put** (lowest strike): Long put provides protection on the downside.
**Sell OTM Put** (higher strike): Short put generates credit.
**Sell OTM Call** (lower call strike): Short call generates credit.
**Buy OTM Call** (highest strike): Long call provides protection on the upside.
Payoff Characteristics
**Max Profit**: Net premium received—achieved when price stays between short strikes.
**Max Loss**: Wing width minus premium—achieved when price moves beyond either long strike.
**Profit Zone**: Between the breakevens (short strikes ± premium).
The Iron Butterfly Strategy
An **iron butterfly** is similar to an iron condor but with the short put and short call at the same strike (ATM). It offers higher premium but a narrower profit zone.
**Iron Butterfly**: ~$3 premium / $2 risk = 150% max return but only 30-40% probability of max profit.
Position Sizing
Size positions based on **max loss**, not premium received. If you can lose $500 per contract on an iron condor and your risk budget is $2,500, trade a maximum of 5 contracts regardless of expected profit.
Position Management and Adjustments
Active management can significantly improve strategy performance.
Profit Taking
**50% Rule**: Close when you've captured 50% of max profit to free capital and reduce gamma risk.
**21 DTE Exit**: Many traders close all positions at 21 days to expiration regardless of profit level.
**Time Decay Acceleration**: Most theta decay occurs in final weeks—balance profit potential vs. risk.
Defense and Adjustments
**Roll Untested Side**: If price moves toward one side, close the untested spread and potentially roll it closer for additional credit.
**Inversion Defense**: If tested, you can "invert" the condor by rolling the tested side through the untested side.
**Stop Loss**: Close at 2x premium received (100% loss) to avoid catastrophic losses.
Conclusion
**Iron condors** and **iron butterflies** are powerful defined-risk strategies for neutral market outlooks. Iron condors provide higher probability with lower returns; iron butterflies offer higher returns for those willing to accept lower probability.
Success requires proper strike selection, disciplined position sizing, active management, and realistic expectations. These strategies are cornerstone positions for systematic options traders focused on consistent income generation in range-bound markets.
Frequently Asked Questions
Common questions about iron condors and iron butterflies
What is an iron condor?
An iron condor is a four-leg options strategy combining a bull put spread and bear call spread. You collect premium and profit when the underlying stays within a defined range between the short strikes. Risk is limited to the wing width minus premium received.
What is an iron butterfly?
An iron butterfly is similar to an iron condor but with both short options at the same strike (typically ATM). It collects more premium but has a narrower profit zone—max profit only occurs if the underlying expires exactly at the center strike.
When should I use an iron condor vs butterfly?
Use iron condors when you expect low volatility and want higher probability of profit with a wider profit zone. Use iron butterflies when you have a specific price target and want higher potential return, accepting lower probability of success.
What are typical strike selection guidelines?
Many traders select short strikes at 15-20 delta (approximately one standard deviation OTM), providing 65-75% probability of the strikes expiring OTM. Wing width (difference between long and short strikes) determines max loss—typically $2.50-$5 per contract.
What expiration should I choose?
30-45 days to expiration (DTE) is the sweet spot for most traders. This balances theta decay (time value capture) against gamma risk (sensitivity to price moves). Shorter expirations offer faster decay but higher gamma; longer expirations have slower decay.
When should I take profits?
Many traders close at 50% of max profit. Studies show this improves risk-adjusted returns by reducing exposure to gamma risk in the final weeks. Alternatively, close at 21 DTE regardless of profit to avoid expiration week volatility.
How do I manage a losing iron condor?
Options include: (1) Close the untested side and potentially roll it closer for additional credit, (2) Close the entire position at a predetermined loss (e.g., 2x premium), (3) Roll the tested side out in time, (4) Accept max loss if close to expiration with little recovery potential.
What is the risk/reward ratio for iron condors?
Typical iron condors collect $1-$2 premium with $3-$4 max risk per $5-wide wings, yielding 25-50% return on risk if max profit is achieved. However, when trades fail, you lose the full risk amount—requiring high win rates for profitability.
How should I size my iron condor positions?
Size based on max loss, not expected profit. If your max risk per trade is 2% of your account and max loss is $500 per condor, with a $50,000 account you'd trade (50,000 × 0.02) / 500 = 2 contracts maximum.
Do iron condors work in all market conditions?
Iron condors work best in low-volatility, range-bound markets. They struggle in trending or high-volatility environments where large moves breach the short strikes. Avoid opening new iron condors before major events (earnings, Fed meetings) unless you adjust strike selection.
Summary
The Iron Condor/Butterfly Calculator analyzes these popular multi-leg spread strategies for range-bound markets.
Iron condors offer wider profit zones with lower returns; iron butterflies provide higher returns for precise price targets.
Use this tool to model scenarios, understand breakevens, and evaluate risk/reward before entering positions.
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Iron Condor / Butterfly Strategy Payoff Calculator
Analyze profit/loss for iron condor and butterfly spreads at expiry across price scenarios.
How to use Iron Condor / Butterfly Strategy Payoff Calculator
Step-by-step guide to using the Iron Condor / Butterfly Strategy Payoff Calculator:
Enter your values. Input the required values in the calculator form
Calculate. The calculator will automatically compute and display your results
Review results. Review the calculated results and any additional information provided
Frequently asked questions
How do I use the Iron Condor / Butterfly Strategy Payoff Calculator?
Simply enter your values in the input fields and the calculator will automatically compute the results. The Iron Condor / Butterfly Strategy Payoff Calculator is designed to be user-friendly and provide instant calculations.
Is the Iron Condor / Butterfly Strategy Payoff Calculator free to use?
Yes, the Iron Condor / Butterfly Strategy Payoff Calculator is completely free to use. No registration or payment is required.
Can I use this calculator on mobile devices?
Yes, the Iron Condor / Butterfly Strategy Payoff Calculator is fully responsive and works perfectly on mobile phones, tablets, and desktop computers.
Are the results from Iron Condor / Butterfly Strategy 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.