Iron Butterfly

Use an iron butterfly when you expect the underlying to pin to a specific price (not just stay in a range). Butterflies collect significantly more premium (often 2x) but have a much narrower profit zone. If you're confident about pinning, the higher premium is attractive.

Yes. The probability of ANY profit is lower because the profit zone is narrower. However, when you do win, the wins are larger in absolute terms. The trade-off is fewer wins but bigger wins (when properly managed).

For equity options, there's 'pin risk' - your short options might be slightly ITM and assigned. For index options (like FTSE 100), settlement is cash-based so there's no assignment risk. Either way, most traders close before expiration to avoid uncertainty.

Because you're selling ATM options instead of OTM options. ATM options have maximum time value (extrinsic value), so they command much higher premiums. The trade-off is that ATM options also have maximum gamma and vega risk.

With a properly constructed iron butterfly where both wings are in place, your loss is capped at wing width minus credit. As long as your wings are properly established, you cannot lose more than max loss.

Iron butterflies have concentrated gamma risk at the center strike. Small underlying moves cause large P&L swings. By taking profit at 25%, you capture the easy theta while avoiding the high-gamma endgame. Studies show this often produces better risk-adjusted returns.

Convert to condor when: (1) Underlying has moved away from center and you no longer believe in pinning, (2) You want to stay in a neutral trade but with wider profit zone, (3) The tested side is approaching max loss. Roll the threatened short option away from center.

IV crush benefits butterflies MORE because they sell ATM options with maximum vega. A 5% IV crush might generate £10-15 profit on a butterfly vs £3-5 on a condor. This is why post-earnings or post-event butterflies can be particularly attractive.

30-45 DTE is typical. Shorter durations (under 21 DTE) have extreme gamma but rapid theta. Longer durations (45+ DTE) have lower theta per day. Many experts prefer 30-35 DTE as a balance, planning to close at 14-21 DTE.

An iron butterfly uses both (sell ATM put + sell ATM call + wings). You can also create a butterfly using all calls or all puts (long butterfly), which is a debit strategy. The iron butterfly (using both) is a credit strategy and most common for premium collection.

Focus on: (1) Entry in high IV environments (50%+ IV Rank), (2) Conservative profit targets (25-50%), (3) Strict stop losses (100% of credit), (4) Time exits at 14-21 DTE, (5) Position sizing allowing many trades. Backtest these parameters for your specific underlyings.

Gamma scalping butterflies is rarely worth it for most traders due to transaction costs and the need for constant monitoring. It can work if: (1) You have very low commissions, (2) You can monitor continuously, (3) Position is large enough that scalps are meaningful, (4) Underlying is particularly rangy.

For bullish broken wing: wider put wing (e.g., 150 points) and narrower call wing (e.g., 75 points). This gives more downside room and less upside room, creating bullish bias. For credit: ensure total structure collects credit. Adjust wing widths until you achieve desired bias and credit.

Expiration week butterflies offer high annualized returns but extreme gamma. Optimal approach: (1) Enter Monday-Wednesday with 3-5 DTE, (2) Center at major open interest strike (likely pin target), (3) Take profit very quickly (15-25%), (4) Use tight stops (50% of credit), (5) Close by Thursday to avoid pin risk.

Use butterflies for high-conviction pinning scenarios (post-earnings, exp week, major levels). Use condors for general range expectation. Track aggregate Greeks across both. Butterflies add to negative vega/gamma so ensure portfolio-level exposure is acceptable. Many traders do 70% condors, 30% butterflies.