Iron Butterfly

Use iron butterflies when you have high conviction the stock will stay at a specific price, not just in a range. Butterflies collect more premium but have a narrower profit zone. They're best after events (like earnings) when IV is high and the stock has settled at a new equilibrium.

Maximum loss is the wing width minus the credit received. For example: $5 wings - $4 credit = $1 max loss per share × 100 = $100 max loss. This occurs if the stock goes beyond either wing at expiration.

Because you need credit of at least 60% of wing width for good risk/reward. ATM options have the highest vega, so high IV is needed to inflate their prices enough. In low IV, you won't collect enough premium to justify the concentrated risk.

Generally no. Take profits at 25-50% of max credit. Holding to expiration means maximum gamma risk - a small move in the final days can turn a winner into a loser. The last 50% of profit isn't worth the risk.

You'll likely lose money. If the stock moves 3%+ from your strike, consider closing to limit losses. You can also convert to a condor by closing the tested side. If the stock moves to your wing, you're approaching max loss - close and reassess.

Use symmetric wings for pure neutral plays with no directional bias. Use asymmetric wings when you want more protection on one side - for example, wider put wing if worried about downside. Asymmetric wings also let you exploit put-call skew pricing differences.

The best time is immediately AFTER earnings, not before. Wait for the announcement, let the stock settle (15-30 minutes), then enter at the new equilibrium. You capture elevated IV while benefiting from the crush. Entering before earnings risks a gap move that can cause max loss.

If the stock moves up, buy back the short call (leaving a bull put spread). If the stock moves down, buy back the short put (leaving a bear call spread). You're essentially removing the tested side. This costs money but reduces risk if you think the stock will stay in the new area.

Butterfly gamma is concentrated at one strike (ATM), making it very sensitive to moves. Condor gamma is distributed between two strikes, so each side has less concentration. A 2% stock move hurts a butterfly more than a condor because of this concentration.

Yes, but act early. Options: (1) Convert to condor by closing tested side, (2) Roll to new strike at current stock price, (3) Widen wings for more room. Don't adjust after 14 DTE - gamma is too high. If loss is already 75%+, often better to close than adjust.

Calculate max pain by finding the strike where total ITM option value is minimized. Look for strikes with high put AND call open interest - these act as potential magnets. Place butterfly strikes at or near max pain, especially in the final week when pinning effects are strongest. Remember, max pain is a tendency, not a guarantee.

Target IV > 1.2× recent realized volatility (use HV20 or HV30). This indicates options are 'expensive' relative to actual movement. Higher ratios (1.3-1.5×) provide more edge. Below 1.2×, the premium isn't sufficient for the risk. Track this ratio over time for each underlying to understand normal ranges.

Calculate aggregate position gamma (sum across all positions). Set a portfolio gamma limit (e.g., total gamma × expected 1-day move < 5% of account). When approaching limits, either reduce butterfly positions or add long gamma hedges (like small long straddles on different underlyings). Monitor daily as gamma changes with time and stock prices.

Skip-strike butterflies (wider gaps between body and wings) are useful when you want a wider profit zone but still want more premium than a condor. They have lower gamma concentration than standard butterflies. Use when you're less confident about exact pinning but still expect the stock to gravitate toward a specific area.

Track by: (1) IV regime at entry (IV Rank buckets), (2) DTE at entry, (3) Underlying characteristics, (4) Exit type (profit target, stop loss, time stop, adjustment), (5) IV at exit vs. entry. Calculate win rate, average win/loss, profit factor by segment. Most importantly, track whether adjustments improved or hurt outcomes to refine adjustment rules.