Short Call Butterfly

Two calls bought at the middle strike against one sold above and one below: a credit structure that keeps the credit when the underlying finishes outside the wings.

Also called Reverse call butterfly

Outlook

Volatility

Family

Ratio

Level

Advanced

Legs

3 legs

Expirations

1 expiration

Opens for

Credit

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	Long	Call 100	2	At the money
A	Short	Call 95	1	5.00 points further in the money than B
C	Short	Call 105	1	5.00 points further out of the money than B

What it is

A call butterfly reversed: one call sold at A, two bought at B, one sold at C, evenly spaced in one expiration.

The structure opens for a credit, and the credit is kept in full anywhere outside the wings. The loss appears in the middle, which is the opposite of almost every other credit structure in this encyclopaedia.

The payoff

At expiration

An inverted narrow tent: flat at the full credit on both sides, falling to a trough at the middle strike B.

• Below A and above C — everything cancels and the full credit is kept.
• At B — the worst case: (B − A) less the credit.
• Between the strikes — the position slides between those two outcomes.

Both the gain and the loss are bounded, which is why the fact box reads Limited on both lines.

How it behaves before expiration

Today, before expiration

Today's value is an almost flat line above the inverted tent, with the trough barely visible.

Flat for most of its life, like its inverse. The trough at B only deepens in the final days.

The Greeks

Delta is small and changes sign at B. Gamma is positive at B, negative at the wings. Theta is negative near B — time works against the position exactly where it is losing. Vega is positive near B.

Where it lives in the volatility environment

Practitioners describe it as a defined-risk way to be paid for a move away from a strike, and note that it is usually compared with an inverse iron butterfly, which expresses a similar view for a debit. The choice is generally about which side of the structure carries assignment risk.

What can go wrong

• The worst case sits where the underlying already is. A quiet expiry near B produces the maximum loss.
• The credit is small relative to the width.
• Two short legs, on opposite sides, each with its own assignment risk before an ex-dividend date.
• Six crossings, and the middle strike carries two contracts.
• A partially closed structure is a vertical spread or a ratio, depending on which legs remain.

Building it in Option Panel

Open Build Strategy and pick Short Call Butterfly. The body strike is chosen first and the wings are offsets from it.

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

Related strategies

• Call Butterfly — the other side.
• Short Put Butterfly — the same position built from puts.
• Inverse Iron Butterfly — the same view as a debit structure.