Butterflies & iron condors
Betting on where the stock won't go — precision and range strategies.
Butterflies and iron condors are defined-risk strategies that profit when the stock stays inside a range. A butterfly targets one precise price at expiry; an iron condor sells a wider range on both sides. Both cap the loss in advance and pay best when the market goes nowhere.
The butterfly spread
A long butterfly buys one lower strike, sells two at a middle strike, and buys one higher strike — three strikes, defined risk, and very cheap. It pays best when the stock finishes exactly at the middle strike: a bet that the market goes nowhere.
- Best market — quiet, range-bound tape; and around OPEX, when price tends to pin large open-interest strikes.
- The edge — a butterfly is priced off IV. When IV is elevated but you expect chop, the fly is cheap relative to the range you are betting on.
The iron condor
An iron condor is the seller's version of a range bet: sell an OTM call spread and an OTM put spread. You collect premium as long as the stock stays inside the range through expiry.