An iron fly is a short straddle wearing a seatbelt. You sell the at-the-money call and put, then buy an out-of-the-money call and put to cap the tails. The credit is large — typically 40% to 60% of the wing width — and so is the probability of ending somewhere other than exactly the body.
Compared with an iron-condor of the same width, the iron fly collects far more premium but has a much narrower profit zone and negative gamma concentrated at the money. That means the position moves against you fast when the underlying trends, and mean reverts sharply when it does not.
Example: XYZ at $50. Sell the $50 call at $2.30 and the $50 put at $2.10, buy the $55 call at $0.80 and the $45 put at $0.65, for a $2.95 credit on $5 wings. Max profit $295 at exactly $50, max loss $205, breakevens $47.05 and $52.95.
Related: iron-condor, long-butterfly, straddle, gamma-risk