The iron butterfly and iron condor options strategies profit from little price change in the underlying asset.

When the stock moves in a limited range and realized volatility is flat or dropping, both methods benefit. Both techniques implicitly gamble that the underlying will move less than the market predicts.

Both strategies use four option legs: two put and two call options. Each approach involves selling a put and a call and buying a put and a call.

Both are credit strategies, which means they charge a premium to join the position. The initial credit obtained represents the greatest profit possible, and a profit is earned when the cost of the position drops.

Both are risk-management tactics. When you start the transaction, you know what your maximum loss is.

Delta neutral, long theta, short Vega, and short gamma are the Greeks for both methods.

Now that we've established the commonalities, we'll go through each method and discuss the important distinctions between iron condor vs iron butterfly you should be aware of.

The iron butterfly

Iron butterflies come in two lengths: short and long. The alternatives all have the same expiry date.

At-the-money options include a short call and a short put (atm). Atm options are more costly and have a greater theta decay than otm options.

The two lengthy legs are a long call and a long put, both bought out of the money. The position's risk is defined by the lengthy option legs.

The maximum risk of the position is computed by subtracting the credit obtained from the spread width between the short and long options.

The iron condor

Iron condors, like the iron butterfly, have two short and two long alternatives. The expiry date is the same for all selections.

The two short legs, however, a call and a put, are sold out of the money. The short call is sold above the stock's price, while the short put is sold below it.

Again, the two long legs are acquired at a higher cost for protection (above the short call and below the shot put).

Consider the position to be two credit spreads traded above and below the current stock price. You, like the iron butterfly, are given credit to begin the deal.

What distinguishes an iron butterfly from an iron condor?

The distinction between the iron condor and the iron butterfly is one of structure and danger.

An iron condor, as previously stated, is simply a bear call spread mixed with a bull put spread, while an iron butterfly is similar to an atm short straddle and an otm long strangle.

The payoff diagrams above show that iron condors have a larger profit zone than iron butterflies. The iron butterfly, on the other hand, has a bigger earning potential than the iron condor.

The iron butterfly has more Vega exposure than the iron condor since it offers atm options.

Which approach is superior?

Neither method is inherently superior to the other. The strategy used by a trader is determined by their volatility outlook, directional bias, liquidity preference, and risk tolerance.