Iron Butterfly

An Iron Butterfly is a neutral options strategy that combines a short straddle (selling an ATM call and ATM put at the same strike) with a long strangle (buying an OTM call and OTM put for protection), all at the same expiry. It is structured for maximum profit when the underlying asset closes exactly at the short strike price at expiry, allowing both the ATM call and put to expire worthless. The long OTM options cap the risk if the market moves sharply in either direction. Compared to an Iron Condor, the Iron Butterfly offers a higher maximum profit in a narrower range, making it suitable for traders who expect the market to remain very close to a specific level through expiry.