Broken Wing Butterfly
A butterfly with one wing wider than the other, creating asymmetry in risk and reward.
Profit / Loss Diagram
Broken Wing Butterfly at expiration
What is this strategy?
The Broken Wing Butterfly is an asymmetric variant of the regular butterfly spread. Instead of two wings of equal width, one wing is significantly wider than the other. This produces a tilted or "broken" P&L diagram, hence the name. The trader skews the position toward a particular direction while keeping risk defined.
For example, a bullish broken wing butterfly might buy 1 ATM call, sell 2 slightly OTM calls, and buy 1 much further OTM call, leaving a large gap. This typically results in a net credit rather than a debit, a larger but asymmetric maximum gain, and risk concentrated mainly in one direction. It suits traders with a MILD directional view who still want defined risk.
The appeal of the Broken Wing Butterfly is that it offers a better risk-reward ratio than a regular butterfly when you have a slight bullish or bearish lean. It is popular in markets where you have an inclination but not strong conviction. Opened for a CREDIT, it removes risk entirely on the narrow side. It does require more monitoring than a symmetric butterfly because of the asymmetry.
Construction
| Action | Instrument | Strike | Expiration | Example |
|---|---|---|---|---|
| BUY | 1 Call | ATM | 30-45 DTE | +1 AAPL Aug 175 Call |
| SELL | 2 Calls | Slightly OTM | 30-45 DTE | -2 AAPL Aug 180 Call |
| BUY | 1 Call | Far OTM (wide wing) | 30-45 DTE | +1 AAPL Aug 190 Call |
Example
Scenario: AAPL at $177, a mild bullish lean. The upper wing is left wide so the structure opens for a credit.
- Call Purchased (175) +1 AAPL Aug 175 Call @ $5.00
- Calls Sold (180) -2 AAPL Aug 180 Call @ $3.00 each
- Call Purchased (190) +1 AAPL Aug 190 Call @ $0.50
- Net Credit +$50 (600 − 500 − 50)
- Maximum Gain $550 (at the 180 strike at expiration)
- Maximum Loss $450 (above 190: wide wing 10 − short wing 5 − credit 0.50)
- Breakeven $185.50 (185 + 0.50) — there is no downside breakeven
- Profit if AAPL = $183 $250 (0.50 + 185 − 183 × 100)
The Greeks
Slight positive delta reflects the bullish lean. Less delta than an outright call but more than a symmetric butterfly.
Favourable theta in the middle zone. Not as high as a symmetric butterfly but still positive.
Falling volatility helps. The effect is asymmetric depending on which wing is broken.
Negative but asymmetric gamma. The broken wing creates different gamma dynamics on each side.
Position Management
- 01 Close Early if the Target Is Reached If AAPL reaches $180 or near it, close the position to bank the maximum gain. Do not wait for further movement.
- 02 Monitor the Broken Wing The wider wing (190 here) is where the risk sits. If price approaches $190, the loss expands. Close if it gets close.
- 03 Exploit the Initial Credit You received $50 of net credit. That means below the lower strike the position finishes profitable no matter what: all the risk is concentrated above the wide wing.
- 04 Adjust if Price Falls Significantly If AAPL drops to $170, everything is out of the money and you keep the credit. Consider closing rather than waiting for late theta erosion.
- 05 Reassess Risk-Reward Continuously The broken wing shifts its profile as price moves. Make sure your residual risk always stays within tolerance.