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Key Takeaways
- An equal-width long butterfly buys one lower-strike option, sells two middle-strike options, and buys one upper-strike option.
- All four contracts use the same underlying, option type, expiration, and deliverable.
- Maximum expiration profit is one wing’s width minus the debit, earned exactly at the middle strike.
- Maximum expiration loss is the opening debit, reached at or beyond either outside strike.
- Compare the full profit tent, both breakevens, and the planned exit value before entering.
What is a butterfly spread?
A butterfly spread is a three-strike options strategy in a 1:2:1 ratio: it buys one option at the lower strike, sells two at the middle strike, and buys one at the upper strike, all in the same expiration. The long version costs a net debit, which is its maximum loss, and earns its maximum profit when the stock finishes exactly at the middle strike.
A long butterfly uses matching underlying, option type, expiration, and deliverable, with equal distance between neighboring strikes. The middle strike is the body and the outside strikes are the wings. At expiration, the position’s gross value forms a tent that peaks at the body. Subtract the opening debit to turn that tent into P&L.
Formula
Equal-width long butterfly: max profit = strike width − net debit; max loss = net debit; breakevens = K_low + debit and K_high − debit- Strike width is K_mid − K_low = K_high − K_mid, measured per share.
- Multiply all per-share profit and loss values by the contract multiplier.
How to calculate butterfly spread profit, loss, and breakevens
A trader buys one 95 call for $6.40, sells two 100 calls for $3.10 each, and buys one 105 call for $1.20, all with the same expiration.
- Net debit = $6.40 − (2 × $3.10) + $1.20 = $1.40, or $140
- Maximum profit = ($5.00 − $1.40) × 100 = $360 at $100
- Lower breakeven = $95 + $1.40 = $96.40
- Upper breakeven = $105 − $1.40 = $103.60
The spread loses at most $140 below $95 or above $105 and forms its $360 peak only when XYZ finishes at the $100 body strike.
Each wing is $5 wide. Maximum expiration profit is $500 minus the $140 debit, or $360, earned at exactly $100. Maximum loss is $140 at or below $95 and at or above $105.
The lower breakeven is $95 plus $1.40, or $96.40. The upper breakeven is $105 minus $1.40, or $103.60. At $98 or $102, gross value is $300 and profit is $160.
Between $95 and $100, the package gains $100 for each one-dollar increase in the expiration stock price. Between $100 and $105, it loses $100 for each one-dollar increase. The two sides define the complete profit tent.
Payoff at expiration
Illustrative figures from this page's example, priced by the InsiderFinance options profit calculator. Probability assumes 25% volatility, a 4% rate and 45 days to expiration.
- Max Profit
- $360.00
- Max Loss
- -$140.00
- Break-Evens
- $96.40, $103.60
Interactive payoff loads as you reach it
Load this setup on live SPY options. Move the strikes and scrub to any date.
Build This StrategyCall vs put butterflies and wing width
Equal-width call and put butterflies with matching strikes and deliverables have the same gross expiration payoff. Subtract each package’s executed debit to compare its P&L. Trade the version with the tighter quote on all four legs, and check its exercise style before holding it into an ex-dividend date.
Compare wing widths while holding the middle strike fixed. Track the debit, both breakevens, profit at several nearby prices, and the dollar loss limit. A broken-wing butterfly uses unequal widths and needs its own complete payoff calculation.
Butterfly spread P&L before expiration
Current P&L equals the package’s closing value minus its entry debit. Net Greeks combine one lower option, minus two middle options, plus one upper option. Calculate them at the stock prices and dates in your plan.
Set the target closing value and holding period alongside the expiration target. Use expected move, price structure, and gamma exposure to compare the tent with the price region you want to trade. The options profit calculator shows both breakevens, the full tent, and the value at a planned exit date.
Managing a butterfly spread and early assignment
Use one multi-leg order with the intended net debit. To close, reverse all four contract positions in the same ratio. Assignment of either short option creates its specified stock delivery, so plan the shares you intend to hold if carrying the contracts through expiration.
Risks and limitations of butterfly spreads
- Trade the profitable range, not just the peak. The $360 peak needs the stock at exactly $100 at expiration; between the $95 and $105 wings, profit falls by $100 for each dollar away from the body and turns into a loss outside the $96.40 and $103.60 breakevens.
- Plan the exit from the current package price. Before expiration the package is worth less than its expiration peak, because the two short body options still hold time value. 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 either one can be assigned early, which turns the position into shares plus the remaining options.
- Enter with one net limit order. Four contracts at three strikes pay four bid-ask spreads on entry and exit, and those costs raise the effective debit and narrow the profitable range.
Bottom line
Only a finish at $100 pays the $360 peak on the $140 butterfly, so it is a bet on a price and a date together. Place the body at your target, and judge the trade by the $96.40 and $103.60 breakevens and its value at your planned exit.
Clear answers
Frequently Asked Questions
Sources and Further Reading
- OIC: Long Call Butterfly
- OIC: Long Put Butterfly
- OCC: Characteristics and Risks of Standardized Options
How entries are sourced, calculated and updated: editorial methodology.