Snapshot
Legs
Buy 1 Low Call + Sell 2 Mid Calls + Buy 1 Skip-Strike High Call
Outlook
Neutral to Mildly Bullish
Max profit
Lower width plus net credit received
Max Loss
Difference in wing widths minus net credit received
A call broken wing butterfly strategy is created by buying one low-strike call, selling two middle-strike calls, and buying one high-strike call with a wider gap between the middle and high strikes. This asymmetrical wing structure allows the trade to be opened for a net credit or zero cost. Traders use this when they expect the stock to land near the middle strike without risking money if the stock drops.
Maximum profit occurs if the stock closes right at the middle strike price at expiration. If the stock drops, you lose nothing because the trade was established for a credit. Risk is shifted entirely to the upside beyond the wider wing if the stock surges unexpectedly.
Example
Stock
$100
Trade
- Buy one $95 Call for $6.00
- Sell two $100 Calls for $3.50 each
- Buy one $110 Call for $0.50
→ $0.50 credit ($50)
Breakeven
$105.50 (Upside only)
Outcomes
- Stock at $100: +$550 Max Profit
- Stock ≤ $95: +$50 Credit Kept
- Stock > $105.50: Loss Zone (e.g., -$450 at $115)