Excerpt from Iron Condor: Neutral Strategy for Uncommon Profit.
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The “iron butterfly” position is a special case of an iron condor where the short put options and the short call options have identical strike prices. A profit and loss diagram for the iron butterfly strategy is shown in Figure 7.1.
As you can see in Figure 7.1, the iron butterfly has a very narrow profitability region as compared to an iron condor; however, the maximum potential profit for an iron butterfly is greater than for an iron condor, all else being equal.
An iron butterfly is best applied to securities that are stuck in a trading range and unlikely to venture from the trading range prior to expiration.