Strategy Overview
Medium RiskExpertNeutralBullishBearish
A broken wing butterfly is a butterfly spread with unequal wing widths. This creates directional bias and can often be done for a credit, eliminating risk on one side.
Max Profit
Width of narrow wing + credit received
Max Loss
Width of wide wing - credit received
Breakeven
Middle strike +/- adjusted for credit
Probability
~40% win rate
hist. est.
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Example Setup Calculator
$
Debit Paid
$200
Max Profit
$300
Max Loss
$200
Breakeven
$102.00
Strategy Components
BUY OTM PUT
Buy 1 far wing (wider)
SELL ATM PUT
Sell 2 at body strike
BUY OTM PUT
Buy 1 near wing (narrower)
When to Use
- You want butterfly exposure with directional bias
- You want to eliminate risk on one side
- You expect the stock to settle near the body
- You want to collect a credit on entry
Best Market Conditions
- Neutral with directional lean
- Elevated IV
- Clear price target for expiration
Best Practices
- Structure for credit to eliminate risk on one side
- Place body strike at expected price target
- Use when IV is elevated
- Manage at 50% of max profit
Ready to Trade?
Review Broken Wing Butterfly and practice it in paper trading with the school workflow.
Paper Trading