Call Broken Wing Butterfly

A call butterfly with unequal wings: the wider wing moves where the risk sits, and the structure can open for a credit instead of a debit.

Also called Broken wing call butterfly, Skip strike call butterfly

Outlook

Bearish

Family

Ratio

Level

Expert

Legs

3 legs

Expirations

1 expiration

Opens for

Credit or debit

Maximum profit

Limited

Maximum loss

Limited

Legs at the reference strikes this page's diagrams are drawn from

Leg	Side	Contract	Ratio	How the strike is chosen
B	Short	Call 105	2	Delta 30
A	Long	Call 100	1	5.00 points further in the money than B
C	Long	Call 115	1	10.00 points further out of the money than B

What it is

A call butterfly with the outer wing moved further out: one call bought at A, two sold at B, one bought at C, with C − B wider than B − A.

That single change does two things at once. The far wing is cheaper than a symmetric one would be, so the structure can open for a credit rather than a debit — and because the wings no longer cancel, the risk is no longer symmetric. The fact box shows Credit or debit for exactly that reason: which one it is depends on where the strikes are placed.

The payoff

At expiration

A tent with one side longer than the other: flat at the credit below A, a peak at B, and a descent to a larger flat loss beyond C.

• Below A — everything expires worthless. If the structure opened for a credit, that credit is kept; if for a debit, it is lost.
• At B — the peak, as with any butterfly.
• Between B and C — the two short calls give back the gain.
• Above C — the long C call catches the second short one and the loss stops, at (C − B) − (B − A) less the credit. That is larger than a symmetric butterfly’s maximum loss, and it is the price of the credit.

The asymmetry is the whole structure: one side risks little or nothing, the other side carries a bigger loss than a butterfly would.

How it behaves before expiration

Today, before expiration

Today's value is a much flatter version of the tent, with the peak barely formed.

Flat for most of its life, like any butterfly. The peak and the far-side risk both become real only near expiry.

The Greeks

Delta is negative overall — the structure leans bearish, which is what the fact box records.

Gamma is negative at B and positive at the wings, unevenly.

Theta is positive near B.

Vega is negative near B.

Where it lives in the volatility environment

Practitioners describe the broken wing as a way to remove the risk from one side of a butterfly and concentrate it on the other, and note that whether it opens for a credit depends on the shape of implied volatility across strikes: the further wing is cheap precisely where out-of-the-money calls are cheap relative to nearer ones.

What can go wrong

• The bigger loss is on the wide side, and it is larger than the butterfly this structure is derived from.
• A credit at open is not a free position. It buys the flat side; the exposure moved rather than disappeared.
• Two short contracts at B, with the assignment risk that goes with them.
• Six crossings, on strikes that are unevenly liquid by construction.
• It is easy to misjudge as a butterfly. The spacing is the whole difference, and the payoff is not symmetric.

Building it in Option Panel

Open Build Strategy and pick Call Broken Wing Butterfly. The body is chosen first; the two wings are then offset independently, which is what distinguishes this from the symmetric butterfly, where one offset is applied to both.

The resulting net credit or debit is shown before the structure is committed.

Back to the encyclopaedia · What-if analysis in the docs

Related strategies

• Call Butterfly — the symmetric version, always a debit, with the risk equal on both sides.
• Put Broken Wing — the mirror, leaning the other way.
• Jade Lizard — another structure built to remove the risk from one side.