A short call butterfly option strategy is built by selling one low-strike call, buying two middle-strike calls, and selling one high-strike call. All options share the same expiration date, and the middle strike sits directly halfway between the low and high strikes. You collect a net credit when opening this trade. Traders use this setup when they expect the stock price to make a significant move away from the middle strike price in either direction.
The maximum profit is limited to the net credit collected upfront, earned if the stock closes outside the upper or lower strike prices at expiration. The maximum loss occurs if the stock closes exactly at the middle strike price at expiration, equal to the distance between adjacent strikes minus the net credit received.
- Sell $95 Call for $6.00
- Buy two $100 Calls for $3.00 each
- Sell $105 Call for $1.00
- Stock ≤ $95 or ≥ $105: +$100 Max Profit
- Stock at $96 or $104: $0 Breakeven
- Stock at $100: -$400 Max Loss