The inverted butterfly: short the wings, long two at the body. A small credit that pays if the underlying finishes outside the wings.
Selling a butterfly collects a credit and wins when nothing lands near the body — the opposite of the usual long-butterfly bet. Maximum profit is the credit received; maximum loss is the wing width minus that credit.
It is rarely the efficient choice. A short fly pays a thin credit for a wide risk and needs a genuine move in either direction, which a strangle or a reverse-iron-condor usually expresses with better reward per dollar of buying-power-reduction. Its niche is closing a long butterfly you no longer want.
Example: XYZ at $50. Sell the $47.50 call, buy two $50 calls, sell the $52.50 call for a $0.55 credit. You keep $55 if XYZ is below $47.50 or above $52.50 at expiration, and lose up to $195 if it settles at $50.
Original diagrams for the ideas on this page. Illustrative, not real market data.
Iron condor: payoff at expiry. Four strikes: the 2 credit is kept in full while the price finishes between 95 and 105, and is lost gradually outside the 93 and 107 breakevens. The bought 90 put and 110 call stop the loss at 3 on either wing.Buying a call: payoff at expiry. A 105-strike call bought for 3 loses that whole 3 if the price finishes at or below 105, breaks even at 108, then gains a dollar for every dollar higher. The loss is capped at the premium; the upside is not capped.
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