Broken Wing Butterfly
Quick Definition
A modified butterfly spread where the wings are at unequal distances from the center strike, creating an asymmetric risk/reward profile.
What Is Broken Wing Butterfly?
A broken wing butterfly (BWB) is a variation of the standard butterfly spread where one wing is wider than the other. This asymmetry creates a position that can be entered for a credit (or small debit) while maintaining a defined-risk profile on one side. The wider wing has more risk but also allows the trader to collect premium upfront. For example, in a put broken wing butterfly, a trader might buy one $45 put, sell two $50 puts, and buy one $60 put — the upper wing ($60-$50) is wider than the lower wing ($50-$45). This strategy is popular among income-focused options traders because it can profit in flat to moderately directional markets while limiting risk on the narrow side.
Broken Wing Butterfly Example
- 1A put BWB on SPY: buy 1x $440 put, sell 2x $450 puts, buy 1x $455 put — the lower wing is $10 wide, upper wing is $5 wide, collected for a $0.50 credit
- 2If SPY stays above $450 at expiration, the entire broken wing butterfly expires worthless and the trader keeps the initial credit received
Related Terms
Butterfly Spread
A neutral options strategy combining a bull spread and bear spread with three strike prices, profiting most when the underlying stays near the middle strike.
Iron Butterfly
A neutral options strategy that sells an ATM straddle and buys OTM wings for protection, creating a defined-risk position that profits from low volatility.
Condor Spread
A neutral options strategy using four different strike prices to profit when the underlying stays within a defined range, similar to a wider butterfly.
Vertical Spread
An options strategy involving buying and selling options of the same type and expiration but at different strike prices.
Call Option
A contract giving the holder the right, but not the obligation, to buy an underlying asset at a specified price within a specified time period.
Put Option
A contract giving the holder the right, but not the obligation, to sell an underlying asset at a specified price within a specified time period.
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