Volatility and Range Strategies · Options Trading Guide
A long butterfly concentrates its largest expiration payoff near a central strike. A low entry cost comes with a narrow target and several execution costs.
Construct the symmetric butterfly
Buy one lower strike call, sell two middle strike calls and buy one higher strike call. All use the same underlying and expiration, with equal strike spacing for a symmetric butterfly. The position is often called a long call butterfly even though it contains short options. Confirm the one two one quantities rather than relying on a platform label.
Calculate the tent payoff
Use strikes 90, 100 and 110 with a $3 net debit per share. One standard butterfly costs $300. At expiration at $100, the lower call is worth $1,000 and the other calls have no intrinsic value. Maximum gross profit is $700. At $95, the combined value is $500 and profit $200. At $90 or below, or $110 or above, the combined intrinsic value is zero and the debit is lost.
Locate the breakevens
For this symmetric debit butterfly, expiration breakevens are $93 and $107. The central strike is the highest payoff point, not a prediction. Before expiration, a stock sitting at $100 does not mean the position already has its maximum value. Both short options can retain substantial extrinsic value. A planned early exit needs actual or modelled spread prices at that date.
Understand wing changes
Unequal wings create a broken wing butterfly with different tail payoffs. It can reduce entry cost or produce a credit while moving more loss to one side. Recalculate each region rather than borrowing the symmetric formula. Four contracts also create commissions, spread costs and assignment decisions. Compare a butterfly with a simpler spread under equal loss budgets. A precise target forecast should not be mistaken for precise execution or certainty about the final settlement price.
Try it yourself
A symmetric 50, 55, 60 call butterfly costs $1.20. What are maximum gross profit and the two expiration breakevens?
Show the worked answer
Maximum gross profit is (5 minus 1.20) × 100 = $380. Breakevens are $51.20 and $58.80.
Further reading
Educational material. Examples and rates are hypothetical, not trade recommendations. Product terms, eligibility and risks vary by venue and jurisdiction.
