Same trade idea, two different bets on how precisely you need to be right. The condor is a range bet; the butterfly is a point bet that pays more if the point is close.
Short put + long put below it, short call + long call above it
Short ATM put + short ATM call (short straddle), long put + long call as wings
Short strikes
Two, spread apart (OTM put and OTM call)
One strike, shared by the straddle
Shape of the profit zone
A wide flat plateau between the short strikes
A single peak at one strike — narrower, taller
Max profit
Lower: the credit is smaller because the short strikes sit further out
Higher: you are paid for selling the straddle, not for selling two wings apart
Breakevens
Usually both further from spot
Closer to spot — the peak is taller but the plateau is gone
Max loss
Width of the wider wing minus the credit
Width of one wing minus the credit
What has to happen
Price stays anywhere between the short strikes
Price stays near one strike
Cost of being early
A slow drift to one short strike can be rolled on that side
A drift off the peak decays both directions at once — the position is already wrong
Capital efficiency
More capital per dollar of credit collected
Less capital per dollar of credit, because the peak is closer to spot
Every row is the structure held to expiry unless stated otherwise.
Before expiry the two behave differently in ways the table cannot show — that is what the
sections below are for.
The difference is where you place your bet on the range
Both structures are a short straddle with wings bolted on. The condor separates the two short strikes — one OTM put, one OTM call — which creates a plateau of maximum profit you collect anywhere in between. The butterfly keeps the two short strikes together at a single middle strike, which concentrates all of the profit at one point and pays more for being there.
So the choice is not about risk appetite. Both have defined risk, both are net credit, both peak at the same place in the payoff chart: at max profit the position has already stopped improving. The choice is about how much room you need versus how much credit you want for that room. A condor forgives a sloppy forecast. A butterfly pays you for a precise one and punishes the miss twice — narrower breakevens and a faster decay of profit as price moves away from the peak.
What the wider zone actually costs you
The condor is not "safer" in the way it is usually sold. Moving the short strikes further out lowers the credit and therefore lowers max profit, and it usually requires wider wings to keep the risk defined, which ties up more capital for a smaller return on that capital. You are buying tolerance with return.
The butterfly inverts that: maximum credit for a single strike, at the cost of a profit zone roughly the width between your short strikes — which is zero, because they are the same strike. Everything that is not that strike is decay from the peak. Teasing the butterfly into a condor is a real adjustment (roll one short strike away from spot, keeping the wings), but it converts a point bet into a range bet after the fact, and you pay the spread to do it.
Condor: less credit, wider zone, more capital per credit, rollable on one side.
Butterfly: more credit, single-strike peak, tighter breakevens, less tolerant of drift.
Both: four legs, two spreads, so both pay the bid-ask on four options.
Execution costs are not equal, and they are not small
Both structures are four legs, which means four spreads to cross, and the credit you see on a mid-price quote is not the credit you get. On a liquid index symbol the difference is small; on a single-name chain with a wide market it can swallow a meaningful share of the credit. The butterfly has one advantage here: the two middle strikes are the busiest in the chain, so the straddle is often the tightest part of the book.
The other shared cost is assignment. Both structures sell near-term options that can be exercised early if they go deep in the money — American-style exercise means a short leg can be pulled away from you before expiry, leaving you with stock and the rest of the structure still on. Wing width and cash in the account are what keep that from becoming a forced decision.
Questions
Is an iron butterfly just a condor with the short strikes moved together?
Effectively yes. Same four legs, same defined-risk credit structure. Move the two short strikes apart and you have a condor; put them on the same strike and the short options become a straddle — an iron butterfly. The payoff changes shape accordingly: plateau versus peak.
Which one has higher max profit?
The butterfly, almost always, because the credit is larger when you sell a straddle at the money rather than two options further out. That higher peak comes with much narrower breakevens and no tolerance for a drift off the middle strike.
Which one is riskier?
Neither caps more loss than the other in principle — both are defined by their wings. The practical difference is probability of touching max loss versus the size of the credit. The butterfly reaches its peak more often in theory and misses it more expensively in practice, because by the time price has moved, both short options are losing together.
Which leg is most likely to cause trouble?
The short option nearest the money. If it goes deep in the money before expiry it can be exercised early, which leaves you holding stock against a structure that no longer matches what you planned. Keeping cash available and watching the short strikes is the cost of collecting credit up front.