Iron Condor vs Iron Butterfly: How I Choose the Right Spread

What works better for me when I sell options, a wider range or a bigger credit? That is the core choice in the iron condor vs iron butterfly debate. Both are four-leg, defined-risk, net credit trades, yet they behave very differently.

An iron condor sells out-of-the-money options on both sides with long wings to cap risk. An iron butterfly sells at-the-money options with long wings for protection. My goal in this guide is simple, help you choose the right spread for your account, risk, and market view. I will share clear rules, examples, and a checklist you can use today.

Here is what I cover, how they work, risk and reward, strike and date selection, management, adjustments, mistakes to avoid, and FAQs. This guide fits options traders who know what calls and puts are, and want a clean comparison with real numbers. Quick teaser, the iron condor gives a wider profit zone and a smaller credit, the iron butterfly gives a tighter profit zone and a larger credit.

Iron Condor vs Iron Butterfly: Definitions and Key Differences

Both trades combine a short call spread and a short put spread for a net credit. The long options are the wings, they define the max risk. The key difference sits in the center.

• Iron condor, sell out-of-the-money (OTM) call and put, buy further OTM wings. The center is outside price.
• Iron butterfly, sell at-the-money (ATM) call and put at the same strike, buy OTM wings. The center sits near price.

Typical outcome patterns reflect that center. The condor usually wins more often with smaller gains. The butterfly usually wins less often with larger gains.

Let me ground it with a $100 stock. Suppose I build $5-wide spreads.

• Condor idea, sell the 105 call and 95 put, buy the 110 call and 90 put. The price has a range to wander.
• Butterfly idea, sell the 100 call and 100 put, buy the 105 call and 95 put. The price needs to stay near 100.

The math and emotions feel different. The condor often feels calm and slow. The butterfly can swing fast, then pay big if price pins.

What an iron condor is and how it works

An iron condor has four legs:

• Sell an OTM call.
• Buy a further OTM call.
• Sell an OTM put.
• Buy a further OTM put.

I take a net credit up front. The goal is simple, I want price to stay inside my short strikes until I exit. Max loss equals wing width minus the net credit. If the wings are $5 wide and I collect $1.50, the max loss is $3.50 per share.

I often choose short strikes near 15 to 25 delta. That places my shorts outside the expected move most of the time. The profit zone is wide, which I like in quiet markets. The trade-off is a lower credit compared to a butterfly.

What an iron butterfly is and how it works

An iron butterfly also has four legs:

• Sell the ATM call and the ATM put at the same strike, the short straddle.
• Buy an OTM call and an OTM put as wings.

I collect a larger credit up front. The goal is tighter, I want price to finish near the short strike. The profit zone is narrow, but the payoff near the center can be strong.

There is a variant called a broken-wing butterfly. It moves one wing further out to skew risk. I use it at times to cut downside risk in equities. For clarity, I focus on the standard iron butterfly here.

Payoff shapes, profit zones, and typical outcomes

Think in shapes. The iron condor looks like a flat-top box. Profit stays steady inside the short strikes, then drops near the wings. Small moves still win.

The iron butterfly looks like a peak at the center. Profit is highest right at the short strike, then drops off fast. It needs a more precise finish.

Both shapes can fit. The condor fits range-bound markets. The butterfly fits a likely pin near a level, such as a round number, a volume shelf, or a moving average.

Market views that fit each strategy

Here is how I choose based on view.

• I pick a condor when I expect low to medium volatility and a sideways market. I want theta to work while price drifts inside a range.
• I pick a butterfly when I expect price to hover near a key level, or when I want a bigger credit with tight risk.

Event risk shifts this choice. Butterflies can work around earnings if I target a post-earnings pin and size small. Condors can suffer when the move is large. I avoid condors into big binary events unless I accept the risk fully.

Risk, Reward, and Probability I Can Expect

Both strategies are defined risk. Max profit equals the net credit. Max loss equals the wing width minus the credit. Each has two break-evens. The condor sets them around the short strikes. The butterfly sets them around the center strike.

To keep it concrete, use a $100 stock with $5 wings. I walk through simple numbers below.

Greeks drive outcomes. Both trades are positive theta and negative vega. They like time decay and often like falling implied volatility. Butterflies carry more gamma near expiration. Price sensitivity grows fast, which can be good or bad.

Max profit, max loss, and break-even math in simple terms

Core formulas for both:

• Max profit equals net credit received.
• Max loss equals wing width minus net credit.

Break-evens:

• Condor, upper break-even equals short call strike plus credit. Lower break-even equals short put strike minus credit.
• Butterfly, upper break-even equals short strike plus wing width minus credit. Lower break-even equals short strike minus wing width plus credit.

Quick example:

• Condor on a $100 stock. Sell 105 call and 95 put, buy 110 call and 90 put, collect $1.50. Max profit $1.50. Max loss $5.00 minus $1.50, which equals $3.50. Break-evens at 96.50 and 106.50.
• Butterfly on the same stock. Sell 100 call and 100 put, buy 105 call and 95 put, collect $3.00. Max profit $3.00. Max loss $5.00 minus $3.00, which equals $2.00. Break-evens at 98.00 and 102.00.

Win rate vs payout trade-off in the real world

Condors often target a higher probability of profit. The price can move around and still finish inside the box. Gains are smaller per spread.

Butterflies target a bigger payout when price pins the short strike. The win rate is lower because the profit zone is tighter.

Sizing needs to reflect this. I keep condors moderate in size and avoid crowding my account. I keep butterflies even smaller near expiration because gamma risk rises. A few big losses can erase many small wins. Risk control matters more than setup beauty.

Volatility, theta, and vega in plain words

Both strategies are positive theta. Time decay helps as long as price stays near plan. Both are negative vega. Falling implied volatility often helps by shrinking option prices.

Gamma matters most near expiration. Butterflies can swing fast as price nears the short strike. This can be a gift when it breaks your way, or a sting when price drifts off the mark.

I avoid very low implied volatility credits. Premiums can be thin and not worth the risk. An IV rank filter helps. I like IV rank near 20 to 40 for fair pay, a bit higher for butterflies if I accept the movement risk.

Buying power, margin, and account size needs

Both are defined risk. The broker holds at most the wing width minus the net credit, times the number of contracts. Narrower wings reduce buying power, but fees can make the percentage impact higher per spread.

I use a simple sizing rule. Risk 1 to 2 percent of the account per trade at most. I also watch aggregate exposure across tickers and sectors.

Commissions and fees add up with four legs. Liquidity and tight bid-ask spreads help offset this.

How I Choose Between an Iron Condor and an Iron Butterfly

I follow a repeatable path. It starts with market context, then expires, then strikes, then credit and risk. I close with two worked examples to show the process end to end.

Entry checklist and market conditions I want

• Liquid ticker with tight option spreads.
• Clear range or level to lean on.
• IV rank near 20 to 40 for fair credit.
• No major news unless planned as part of the trade.
• Confirm earnings, dividends, and Fed events on the calendar.
• Confirm position size and max loss fit my plan.

Expiration selection and timing that help

• Condors, I prefer 30 to 45 days to expiration. This gives steady theta with manageable gamma.
• Butterflies, 7 to 30 days can work. Closer dates give higher gamma and faster decay. I size smaller when closer.

I often exit 7 to 10 days before expiration to cut tail risk. Same-day trades are advanced and not part of this guide.

Strike selection rules of thumb I follow

• Condor, I sell short strikes near 15 to 25 delta on both sides. I set wing width based on my account and the expected move, often 2 to 10 points on liquid ETFs. I confirm break-evens sit outside recent highs and lows.
• Butterfly, I sell the ATM strike or lean slightly with the trend. I set symmetric wings unless I choose a broken-wing to shift risk. I aim for a credit that covers at least a third to half of the wing width when possible.

Worked examples on SPY and AAPL

Example 1, SPY iron condor:

• SPY at 450, 35 days to expiration.
• Sell 460 call, buy 465 call. Sell 440 put, buy 435 put. Wings are 5 points wide.
• Target credit around $1.50 for the set. Max profit $1.50. Max loss $3.50. Break-evens near 441.50 and 461.50.
• I would take profits near 50 percent of max profit, around $0.75, or exit 10 days before expiration.

Example 2, SPY iron butterfly:

• SPY at 450, 21 days to expiration.
• Sell 450 call and 450 put. Buy 460 call and 440 put. Wings are 10 points wide.
• Target credit around $5.00. Max profit $5.00. Max loss $5.00. Break-evens near 445 and 455.
• I would scale out near 25 to 50 percent gains, or when price tags 450 and time decay accelerates.

Example 3, AAPL with earnings risk:

• AAPL at 180, earnings in 9 days. I avoid a condor into earnings because a gap can break both sides.
• If I trade, I might use a small iron butterfly after earnings when IV falls. For instance, 14 days to expiration, sell 180 call and 180 put, buy 185 call and 175 put. Aim for a $3.00 to $3.50 credit on a 5-point wing. Max profit $3.00 to $3.50. Max loss $1.50 to $2.00.
• I would size tiny and accept the chance of full loss if price trends away.

Management, Adjustments, and Exits That Protect My Account

The best defense is a clear exit plan set before entry. I choose profit targets, loss limits, and time stops. I also decide when I will adjust and when I will not.

Profit targets, stops, and time-based exits

• Condor, I often take profits at 25 to 50 percent of max profit, or I exit 7 to 10 days before expiration, whichever comes first.
• Butterfly, I scale out near 25 to 50 percent gains, or when price tags the short strike. I avoid holding to expiration unless the size is tiny and I have a plan.

Loss limits keep me safe. I cut near 1.5 to 2 times the credit received, or when price breaks a short strike cleanly with volume.

Defensive moves when price tests a side

• Close early and move on. This is often the best choice.
• Roll the tested spread out in time for a credit if the new odds improve.
• On a condor, bring in the untested side to collect more credit and shrink the break-even gap.
• On a butterfly, shift to a broken-wing structure to cut max loss.

Adjustments should not raise total risk or break plan limits. If an adjustment increases risk, I prefer to close.

Rolling, widening wings, or closing early

I roll when I can collect a credit and improve my odds. I widen wings only if risk stays capped and my account allows it. I often choose to just close and reset rather than fight a trend.

I never add contracts to chase losses. Liquidity, spreads, and fees can turn a fancy plan into a poor outcome. Simpler is often better.

Common mistakes to avoid with both spreads

• Do place trades only when credits are fair for the risk.
• Do size small and keep risk per trade low.
• Do set profit targets and stops before entry.
• Do not place condors in front of major events without a plan.
• Do not set wings too tight for the expected move.
• Do not ignore commissions.
• Do not let a tested side drip to max loss out of hope.

Quick Comparison Table

Conclusion

I pick an iron condor when I want a wider range and steadier wins in calm markets. I pick an iron butterfly when I want a bigger credit and I believe price will settle near a level. Both are defined risk, but they pay in different ways.

A short decision checklist helps:

• Market range or pin?
• IV rank fair for credit?
• Expiration that matches my plan?
• Strikes set with clear break-evens?
• Size within 1 to 2 percent risk?
• Exit plan in place?

Paper trade first, then use small size. Defined risk helps, but discipline protects the account. Review the examples and run the checklist on your next setup.

FAQs: Iron Condor vs Iron Butterfly

Q1.Which is better for small accounts?

Both can fit small accounts because the risk is defined. Narrow wings cut buying power. Butterflies can be cheaper per spread but have a tighter profit zone. I prefer liquid ETFs, smaller width, and strict risk limits.

Q2.Can I use them around earnings?

Iron condors before earnings face gap risk, which can be painful. Iron butterflies can target a post-earnings pin if the wings are wide and the size is small. I accept the chance of full loss on any event trade.

Q3.How do early assignment and exercise work?

Short American-style options can be assigned early, often near ex-dividend dates or when deep in the money. Defined risk limits damage, but assignment can tie up capital. I manage by closing early, rolling, or keeping wings in place to cap risk.

Q4.What about taxes, fees, and pattern day trader rules?

Most outcomes are short-term gains in many regions. A tax pro can give specific advice for your case. Four-leg trades carry more fees, so I use a low-cost broker with good fills. Day trade rules can apply to frequent same-day exits in small accounts.

Q5.Is an iron butterfly riskier than an iron condor?

Risk per spread depends on wing width and credit. A butterfly often has a smaller max loss for the same width because the credit is larger. The path risk is higher near expiration due to gamma. I size butterflies smaller and manage time risk.

Q6.Which lasts longer in a portfolio?

Condors tend to sit in a portfolio longer because they tolerate drift. Butterflies are more tactical. I use them when I see a likely pin or want quick theta.

Q7.What if implied volatility is very low?

I often skip both if credits are poor. The iron condor vs iron butterfly choice still matters, but pay may not justify the risk. I prefer IV rank near 20 to 40 or higher, depending on the ticker.

Q8.Can I leg into these trades?

You can, but slippage and assignment risk can rise. I prefer single-ticket orders on liquid tickers to get cleaner fills and simpler management.

Q9.Do I need to hold to expiration?

No. I often take profits early and exit before expiration. This reduces tail risk and smooths equity curves.