Iron Condors and Iron Butterflies
Advanced income strategies for range-bound markets
What Is an Iron Condor?
An iron condor is a four-leg options strategy designed to profit when a stock stays within a defined range. You simultaneously sell an out-of-the-money call spread and an out-of-the-money put spread. You collect premium from both sides and profit if the stock stays between the two short strikes at expiration.
What Is an Iron Butterfly?
An iron butterfly is similar but more aggressive. Instead of selling OTM spreads, you sell both a call and a put at the same strike (typically at-the-money) and buy protective wings further out. The maximum profit is higher than an iron condor, but the profit zone is narrower.
When to Use Each
Iron condors work best in calm, range-bound markets with moderately high IV. The wider the expected range you sell, the higher the probability of profit but the lower the premium collected. Iron butterflies are best when you have a strong conviction that the stock will pin near a specific price — such as near max pain at expiration.
Key Terms
Iron Condor — A four-leg strategy selling OTM call and put spreads simultaneously
Iron Butterfly — A four-leg strategy selling ATM call and put with protective wings
Credit Spread — A spread where you collect net premium
Max Profit — Achieved when the stock expires between the short strikes