Construction: sell the ATM call and ATM put, buy a wing call and wing put equidistant above and below. Net credit, typically larger than an iron condor at the same expiration. The body of the butterfly (the short straddle component) collects max premium. The wings cap the risk. Max gain occurs at expiration if the stock pins exactly at the short strike — a rare but possible outcome that produces the position's full max profit.
Use cases: high IV rank with a thesis that the underlying will pin to a specific level (e.g., a heavily-watched round number, a strike where significant open interest exists). Avoid in trending markets — the narrow profit zone gets violated easily. Iron butterflies are sometimes deployed pre-earnings to profit from IV crush combined with limited realized move; the credit collected often exceeds the credit on a same-expiration iron condor by 30–50%.