Short Iron Butterfly option strategy
Short Iron Butterfly is a range bound strategy that offers decent reward/risk along with low cost.
Payoff at expiry
Nifty, lot size 65 · Nifty future 22,650 · 6 Oct 2026Legs
| Action | Option | Strike | Lots | Qty | Premium |
|---|---|---|---|---|---|
| BUY | OTM Put | 22,600 | 1 | 65 | ₹111.97 |
| SELL | ATM Put | 22,650 | 1 | 65 | ₹135.67 |
| SELL | ATM Call | 22,650 | 1 | 65 | ₹135.47 |
| BUY | OTM Call | 22,700 | 1 | 65 | ₹112.09 |
How it works
- Buy 1 OTM put at the 22,600 strike for ₹111.97, paying the premium.
- Sell 1 ATM put at the 22,650 strike for ₹135.67, collecting the premium.
- Sell 1 ATM call at the 22,650 strike for ₹135.47, collecting the premium.
- Buy 1 OTM call at the 22,700 strike for ₹112.09, paying the premium.
- You receive a net ₹3,060 upfront for the position. This is the most you can make.
Below 22,597 you lose, up to ₹190.
Between 22,597 and 22,704 you profit, up to ₹3,047.
Above 22,704 you lose, up to ₹190.
Set-up: Buy 1 lot OTM Put, Sell 1 lot ATM Put, Sell 1 lot ATM Call and Buy 1 lot OTM Call.
What happens if Nifty moves
Profit or loss at expiry| Nifty at expiry | Move | Profit / loss |
|---|---|---|
| 21,300 | −6% | −₹190 |
| 21,950 | −3% | −₹190 |
| 22,400 | −1% | −₹190 |
| 22,650 | Unchanged | +₹3,060 |
| 22,900 | +1% | −₹190 |
| 23,350 | +3% | −₹190 |
| 24,000 | +6% | −₹190 |
How the Greeks affect it
When to use
Short Iron Butterfly is range bound Strategy. It is a combination of Bull Put spread and Bear Call Spread. With Short Iron butterflies, you are looking to execute a potentially high-yielding trade at very low cost, where your maximum profits occur if the stock is at the middle strike price at expiration.In scenario where strike difference is not equal it is known as Modified Short Iron Butterfly.
- It is executed when we expect least volatility in the stock 2.It helps to participate in high yielding trade with relatively low cost 2. Being completely hedge one can hold to the stock till expiry.
Things to watch
- Time decay is generally harmful when stock is near Long Put strike or Long Call strike and beneficial if stock price is near ATM short call & Put strike Maximum loss is capped 3.Strike selection is a key to garner maximum benefit.
Short Iron Butterfly: questions
What is a Short Iron Butterfly strategy?
Short Iron Butterfly is a range bound strategy that offers decent reward/risk along with low cost.
When should you use a Short Iron Butterfly?
Short Iron Butterfly is range bound Strategy. It is a combination of Bull Put spread and Bear Call Spread. With Short Iron butterflies, you are looking to execute a potentially high-yielding trade at very low cost, where your maximum profits occur if the stock is at the middle strike price at expiration.In scenario where strike difference is not equal it is known as Modified Short Iron Butterfly.
How do you set up a Short Iron Butterfly?
Buy 1 lot OTM Put, Sell 1 lot ATM Put, Sell 1 lot ATM Call and Buy 1 lot OTM Call.
What is the maximum profit of a Short Iron Butterfly?
Maximum reward is the net credit received, if the underlying closes at the middle strike at expiry. (Strikes are equi-distant from each other).
What is the maximum loss of a Short Iron Butterfly?
It is a net credit strategy. Maximum risk is the difference between adjacent strike prices less the net credit received.
What is the breakeven of a Short Iron Butterfly?
With Nifty at 22,650, the example on this page breaks even at 22,597 and 22,704 at expiry.