Long Call Butterfly
The all-calls version of the traditional butterfly — buy 1 ITM call, sell 2 ATM calls, buy 1 OTM call. Maximum gain if price finishes exactly at the centre strike.
Profit / Loss Diagram
Long Call Butterfly at expiration
What is this strategy?
The Long Call Butterfly is the all-calls version of the traditional butterfly spread — it uses <strong>calls only</strong> across 3 strikes rather than combining puts and calls. Construction: buy 1 ITM call (strike A), sell 2 ATM calls (strike B, the centre), buy 1 OTM call (strike C). The result is a triangular peak with maximum gain at the centre strike.
The P/L profile is identical to the Iron Butterfly but with two key differences: it uses only calls, and it is a <em>debit</em> strategy rather than a credit one. The advantage: margin is lower at some brokers, and call liquidity can be better on certain underlyings such as individual stocks. The disadvantage: you pay a debit up front.
It suits situations where you expect price to finish at a specific strike — useful for very targeted bets on key technical levels such as a historical resistance. Risk and reward are both well defined. It demands precision in predicting the target price.
Construction
| Action | Instrument | Strike | Expiration | Example |
|---|---|---|---|---|
| BUY | 1 Call | ITM (A) | 30-45 DTE | +1 SPY 440 Call |
| SELL | 2 Calls | ATM (B = centre) | Same expiry | -2 SPY 450 Call |
| BUY | 1 Call | OTM (C) | Same expiry | +1 SPY 460 Call |
Example
SPY at $450. You expect it to finish near $450 at expiration. You build a long call butterfly 440/450/460.
- Long 440 Call −$1,150 premium paid
- Short 2× 450 Call +$1,000 ($500 × 2 premiums received)
- Long 460 Call −$150 premium paid
- Net Debit $300 (1,150 − 1,000 + 150)
- Maximum Gain $700 ($1,000 width − $300 debit) if SPY = $450 exactly
- Maximum Loss $300 (the debit) if SPY < $440 or > $460
The Greeks
Delta near zero when SPY sits at the centre strike. It becomes directional near the breakevens.
If price stays near the centre, theta is strongly favourable — the two short ATM calls lose value fastest.
Benefits from falling IV. A long butterfly is a short-volatility position.
High gamma risk near the centre strike, where the position can flip rapidly.
Position Management
- 01 Close at 50% of Profit Take profits at 50% of maximum gain rather than waiting for 100%. The probability of hitting the exact centre strike is low.
- 02 Equidistant Strikes A below the money, B at the money, C above. Equal distances produce the optimal reward-to-risk ratio.
- 03 21–30 DTE Sweet Spot Too short means extreme gamma. Too long means slow theta. The 21–30 day window balances both.