Call Broken Wing Butterfly Calculator

Call Broken Wing Butterfly at a glance

How a call broken wing butterfly works

A standard call butterfly has equal wings. The broken wing version skips strikes on the upper side, so the protective long call sits three strikes above the short calls while the lower long call sits only two strikes below them. Because that upper call is cheaper, the trade costs less, and it can open for a small debit or a small credit depending on volatility and strike spacing. The price of that discount is a band of risk above the short strike that a balanced butterfly does not have.

At expiration, below the lower strike all calls expire worthless, so you lose the debit or keep the credit. From the lower strike up to the short strike, the long call gains, and profit peaks at the short strike at the lower wing width minus the debit, or plus the credit. Above the short strike, the two short calls take back gains until the upper long call starts to offset them. Beyond the top strike, the loss flattens at the difference between the wing widths, adjusted for the debit or credit.

Before expiration, the call BWB carries positive delta near the current price, since the long at the money call dominates, and that delta fades and turns negative as the stock approaches and passes the short strike. The trade earns time decay when the stock sits near the short strikes and generally benefits from falling implied volatility there. The calculator plots the position with time remaining, which can look quite different from the expiration line, especially in the risk zone above the short strike.

Call Broken Wing Butterfly example with real numbers

With the stock at $100, implied volatility at 30%, a 4.1% risk free rate and no dividend, you would buy 1 100 call (32 days) at $3.73, sell 2 105 calls (32 days) at $1.78, buy 1 112.5 call (32 days) at $0.45. That is a net debit of $62. At expiration a maximum profit of $438 and a maximum loss of $312, with breakevens at $100.62 and $109.38. The lognormal chance of profit is 31%.

These are theoretical American option prices from the Bjerksund and Stensland model, not live quotes. Load any ticker in the call broken wing butterfly calculator above to run the same math on real market prices.

When to use a call broken wing butterfly

• You are moderately bullish and have a target price near the short strike.
• You want a butterfly with little or no downside risk, entered for a small debit or a credit.
• Implied volatility is elevated and you expect it to ease.
• You are willing to accept a defined loss if the stock rallies far beyond the target.

Max profit, max loss and breakeven

Maximum profit

(Short strike minus lower strike minus net debit) × 100, or (short strike minus lower strike plus net credit) × 100 if the trade opened for a credit. It is reached if the stock closes exactly at the short strike at expiration.

Maximum loss

On the upside: ((upper strike minus short strike) minus (short strike minus lower strike) plus net debit) × 100, or minus the net credit if opened for a credit. On the downside the loss is only the net debit, and there is no downside loss if the trade opened for a credit.

Breakeven

Upper breakeven = short strike plus the maximum profit per share. Lower breakeven = lower strike plus net debit; if the trade opened for a credit, there is no lower breakeven.

Call Broken Wing Butterfly Greeks

• Delta: Positive when the stock is below the short strike, shrinking to zero near it and turning negative above it, which is why the trade suits a target rather than an open ended rally.
• Gamma: Positive near the lower long call and negative around the short strike, where the two short calls dominate.
• Theta: Small at entry and can be slightly positive or negative, becoming clearly positive as the stock approaches the short strike.
• Vega: Generally negative once the stock nears the short strike, so a drop in implied volatility helps there.

See the live numbers for your position in the Greeks tab of the calculator, or explore a single option in the options Greeks calculator.

Early exercise and assignment risk

The two short calls are out of the money at entry, but a rally pushes them in the money, and from there early assignment is possible, most often the day before an ex dividend date when their time value has shrunk below the dividend. If one short call is assigned, you are short 100 shares and the at the money long call covers them. If both are assigned, the second 100 short shares are covered only by the upper long call three strikes higher, so the uncovered gap is exactly the broken wing risk you accepted at entry.

The trickiest moment is a stock that rallies into the short strike near expiration, which is both the best payoff and the worst pin risk. If the stock closes near the short strike, the lower long call will be exercised automatically while assignment on the two short calls is uncertain, so you could end up long 100 shares, flat, or short 100 shares. Closing the spread, or at least buying back the short calls, before the final hour avoids that exposure and the dividend obligation that comes with short stock.

The calculator's Early exercise risk tab flags short legs that are likely to be assigned. For a single option, use the early exercise calculator or read how early exercise and assignment work.

Pros and cons

How to manage a call broken wing butterfly

• Place the short strike near your price target and confirm in the calculator that the upside risk fits your account.
• If the stock rallies through the short strike early, consider closing or rolling the short calls higher before the risk zone is reached.
• Take profits as the stock approaches the short strike near expiration rather than waiting for a perfect pin.
• Check ex dividend dates and close in the money short calls whose time value is below the dividend.

Call Broken Wing Butterfly FAQ

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Educational tool, not financial advice. Calculations are theoretical and depend on your inputs; real fills, fees, early assignment and dividends can change results. Options involve risk and are not suitable for every investor.