Broken Wing Butterfly (Calls)
A call butterfly with unequal wings. Skews the risk to one side to create a credit entry or reduce cost, with a slight bullish bias.
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What is a Broken Wing Butterfly (Calls)?
A broken wing butterfly with calls is a modified butterfly where the wings are not equally spaced from the middle strike. Instead of a symmetrical structure like $95/$100/$105, you might use $97/$100/$105 — making one wing narrower and one wider. This skews the risk profile so you eliminate risk on one side while accepting more risk on the other.
The typical setup for a call broken wing butterfly has the upper wing wider than the lower wing, creating a slight bullish bias. You can often enter this trade for a small credit or even money, meaning you have zero risk if the stock drops. Your only risk is on the wide side if the stock rallies hard past the upper strike.
How to Set It Up
- Buy 1 call at the lower strike
- Sell 2 calls at the middle strike
- Buy 1 call at a higher strike (further from the middle than the lower strike)
- Same expiration for all legs
- Example spacing: $97/$100/$107 — the lower wing is $3 wide, the upper wing is $7 wide
- Credit or debit: The wider the upper wing relative to the lower, the more likely you enter for a credit.
The trade looks like a butterfly but with a bias built in.
When to Use This Strategy
Use a call broken wing butterfly when:
- You are neutral to slightly bullish
- You want to eliminate downside risk entirely
- You want a butterfly-like payoff that you can enter for a credit
- You want max profit if the stock lands at the middle strike
- You accept some upside risk in exchange for zero downside risk
This is a popular trade among experienced options sellers because you get paid to take a position with defined risk on only one side.
Example Trade
Stock XYZ is trading at $100. You think it will stay flat or drift slightly higher.
- Buy 1 XYZ $97 call for $5.00
- Sell 2 XYZ $100 calls for $3.20 each ($6.40 total)
- Buy 1 XYZ $107 call for $1.00
- Net credit: $6.40 - $5.00 - $1.00 = $0.40 ($40 collected)
If XYZ stays below $97: All calls expire worthless. You keep the $40 credit.
If XYZ closes at $100: The $97 call is worth $3, the short calls expire worthless, and the $107 call expires worthless. Profit: $300 + $40 credit = $340.
If XYZ closes at $107: The $97 call is worth $10, the two $100 calls cost you $14, and the $107 call is worthless. Net: $10 - $14 = -$4. Plus the $0.40 credit = -$360 loss.
If XYZ closes above $107: Losses cap because the long $107 call kicks in. Max loss: (wide wing $7 - narrow wing $3 - credit $0.40) x 100 = $360.
Risk and Reward
- Max profit: (Narrow wing width + credit) x 100. $340 in our example. Achieved at the middle strike.
- Max loss: (Wide wing width - narrow wing width - credit) x 100. $360 on the upside. Zero on the downside (you keep the credit).
- Breakeven: Approximately the upper strike minus the max profit divided by 100 per contract.
The asymmetric risk is the defining feature. No risk to the downside, defined risk to the upside.
Tips and Common Mistakes
- Choose the wing widths carefully. The wider you make the upper wing, the more credit you collect but the more upside risk you take.
- This works best in high IV environments. The credit is larger when volatility is elevated.
- Manage the trade if the stock moves toward the wide wing. Close early to avoid max loss.
- Do not ignore the upside risk. Even though downside is free, a big rally can still produce a significant loss.
Related Strategies
- Long Call Butterfly — symmetrical version with equal wings
- Iron Condor — another neutral strategy with defined risk on both sides
- Broken Wing Butterfly (Puts) — the put version with bearish bias
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