Broken Wing Butterfly

What is a broken wing butterfly?

A broken wing butterfly is a 1:2:1 options spread that buys one option at each outer strike and sells two at a shared body strike, with one wing wider than the other. Profit peaks at the body strike at expiration, and the wider wing puts the maximum loss on its side of the payoff, so the two tails finish at different results.

Match option type, underlying, expiration, and deliverable across the 1:2:1 package. A 95/100/110 call structure has a $5 lower wing and a $10 upper wing. A skip-strike butterfly is a familiar version of this arrangement. Unequal widths define the geometry; the actual entry credit or debit completes the payoff.

How to calculate broken wing butterfly profit, loss, and breakeven

The example buys one 95 call for $6.00, sells two 100 calls for $3.25 each, and buys one 110 call for $0.25. The net credit is $0.25 per share, or $25 per standard package.

At or below $95 at expiration, all calls have zero intrinsic value and profit is $25. At $100, the 95 call contributes $500, producing the $525 maximum profit. At $105.25, the position breaks even. At $110 and above, the complete option payoff produces a $475 loss.

For this upper-wide call structure, maximum expiration profit equals lower-wing width plus credit. Maximum expiration loss equals upper-wing width minus lower-wing width minus credit. Multiply per-share amounts by 100 for one standard package.

Broken wing butterfly for a credit vs a debit

A debit comes straight off every point of the payoff. If the same 95/100/110 structure costs $1 per share, the lower tail loses $100, peak profit is $400, and the upper tail loses $600. Its expiration breakevens are $96 and $104.

Broken wing butterflies with puts

A put structure with the wider wing below the body reverses the arrangement. Calculate each leg’s intrinsic value at the lower strike, body, upper strike, and beyond the wings to map its complete expiration payoff.

Broken wing butterfly P&L before expiration

Add the signed Greeks from all four contracts and reprice the package across the dates and volatility inputs in the plan. The body locates the expiration peak; the current option prices determine the value available to close today.

How to choose broken wing butterfly strikes

Compare a symmetric butterfly and several unequal-wing candidates around that body. Record entry price, maximum expiration profit, each tail outcome, breakevens, and the broker's displayed buying-power requirement.

Use price structure and gamma exposure to select the market scenarios. Inspect the 1:2:1 quantity pattern and shared expiration when reading the position in options flow. The options profit calculator builds the three strikes and 1:2:1 quantities and compares the asymmetric payoff, current value, and target-date outcomes.

Closing a broken wing butterfly and assignment

Use a combined order with a net price limit. To close the long butterfly, sell the outer options and buy back both body options. For physically settled contracts held through expiration, map the stock created by each exercise or assignment and manage the resulting shares.

Risks and limitations of broken wing butterflies

• Size from the wide-wing side, where the maximum expiration loss sits: $475 at or above $110 in the example, against $25 kept at or below $95.
• Open for a credit to keep the narrow side profitable. A credit keeps a profit at or below $95, but the same strikes bought for a $1 debit lose $100 there.
• Plan the exit from current prices. The $525 peak is an expiration value at exactly $100; before expiration the short body options still hold time value, and near the body the position has negative vega, so a rise in implied volatility lowers its value.
• Watch the short body options for early assignment. On American-style contracts they can be assigned early, which leaves a stock position while the wings stay open.
• Enter with one net limit order. Four contracts across three strikes pay four bid-ask spreads on entry and exit, which weigh heavily against a $0.25 credit.

Bottom line

Opened for a $25 credit, this butterfly loses nothing below $95, peaks at $525 at the $100 body and loses at most $475 past $110. Put the body at your target, skip the strike on the side you expect the stock to avoid, and size the position from that $475.