Skip Strike Butterfly — Options Strategy

A skip-strike butterfly (also called a broken-wing butterfly or gap butterfly) is a modified butterfly spread where one of the wings is placed further from the body than the other, creating an asymmetric structure. Unlike a standard butterfly where the wings are equidistant, the skip-strike version has a 'gap' in the strike ladder—you skip one available strike for one of the wings.

The most common use of a skip-strike butterfly is to generate a credit at entry instead of paying a debit. By widening one wing relative to the other, the two sold middle-strike options generate enough premium to more than offset the cost of both long wing options. The result is a net credit trade with a profit tent centered on the short strikes and a defined loss on the wider wing side.

A typical skip-strike put butterfly might buy a $105 put, sell two $100 puts, and skip the $95 strike to buy a $90 put instead of $95. The wider lower wing ($90 vs. $95 in a standard butterfly) costs slightly more, but the two sold $100 puts generate more premium, creating a net credit. The maximum profit is achieved if the stock closes at $100, and the position profits from any outcome above $105 (the credit received).

The directional bias in a skip-strike butterfly is the key feature. By choosing which side to widen, you implicitly bet on the stock not making a large move in that direction. Skip-strike put butterflies are mildly bullish (the wide put wing means you lose if the stock falls dramatically below the lower strike). Skip-strike call butterflies are mildly bearish.

Management of skip-strike butterflies follows the same principles as broken-wing butterflies: monitor the gap risk side (the wider wing direction) and adjust if the stock approaches that level. The credit entry gives you a margin of safety, but a strong directional move against the structure can produce losses exceeding the initial credit.