Broken-Wing
Butterfly

What is a broken-wing butterfly?

A broken-wing butterfly is a long butterfly in which the two wings are not equal distances from the body — you deliberately skip a strike on one side. A standard butterfly buys one option, sells two at a middle strike, and buys one further out, with both outer strikes equidistant. By pushing one of those outer strikes further away, you change the cost and the shape of the payoff: the trade can frequently be entered for a net credit rather than a debit, and the risk on the widened side disappears.

The result is a multi-leg, defined-risk structure that still has a butterfly's tent-shaped peak around the body strike, but with the safety of the skipped wing on the far side. Traders use it when they have a mild directional lean and want a low-cost — or credit — bet that pins near a target level, with no blow-up risk if the market runs away on the skipped side.

Key takeaways

• A broken-wing butterfly is a butterfly with unequal wings — you skip a strike on one side.
• It can often be opened for a net credit, so the skipped side carries no loss at all.
• The payoff keeps a butterfly's single profit peak at the body strike.
• Risk is defined and one-sided — only the narrow wing can lose, and that loss is capped.
• It is a neutral-to-mildly-directional trade that benefits from theta and a quiet market.

How it works

Build a call broken-wing butterfly by buying one lower-strike call, selling two calls at the body (middle) strike, and buying one call further out on the upper wing — but place that upper long further away than a symmetric butterfly would. The two short calls finance the structure; widening the upper wing reduces what you pay for the far protection, which is what flips the trade to a credit. A put version mirrors this on the downside. Because every leg is a bought or sold option of the same type, the position is fully defined-risk from the outset.

On NSE, all four legs are weekly or monthly index or stock options, so the position is cash-settled for indices like NIFTY and physically settled for many single stocks at expiry. The exchange charges SPAN + exposure margin, but because the worst case is known and small, the margin is modest compared with a naked sale. Time decay works for you as price hovers near the body strike, while a sharp move toward the narrow wing produces the only — and capped — loss. A move through the wide, skipped wing simply leaves you with the opening credit.

The numbers that matter

Worked NIFTY example

Suppose NIFTY is near 22,500 and you are mildly bullish but want a cheap, defined-risk bet that pins around 22,700 by weekly expiry. You build a call broken-wing butterfly: buy the 22,600 call, sell two 22,700 calls, and buy one 22,900 call (skipping the symmetric 22,800 strike on the upper wing). Say the structure opens for a small net credit of ₹20. With a lot size of 75, that is ₹1,500 received up front (illustrative figures):

• Lower wing width: 22,700 − 22,600 = 100 points; upper (wide) wing: 22,900 − 22,700 = 200 points.
• Peak profit: at 22,700 the lower wing is worth 100 points (₹7,500) plus the ₹1,500 credit.
• Max loss: capped on the upper side at (200 − 100) points minus credit, i.e. limited and known.

NIFTY at expiry	Outcome	P&L (1 lot)
22,500 (below lower)	All calls expire worthless	+₹1,500
22,700 (body)	Peak — long lower call in profit	+₹9,000
22,800	Sliding off the tent	+₹1,500
22,900 (wide wing)	Defined max loss reached	−₹6,000
23,200 (skipped side)	All legs offset — credit kept	+₹1,500

Notice the asymmetry that defines the strategy: a runaway rally past the wide wing leaves you holding the ₹1,500 credit, not a loss — the risk was shifted entirely onto the narrow-wing side and capped there.

When to use a broken-wing butterfly

• You are neutral with a mild directional lean and expect price to settle near a target strike.
• You want a credit or near-zero-cost entry rather than paying a full butterfly debit.
• You want no risk on one side — typically the direction you fear a surprise move.
• Theta is on your side and you can hold a defined-risk position into expiry.

Risks to respect

• One-sided loss: a move toward the narrow wing produces the maximum loss, capped but real.
• Pin risk: price finishing right between strikes near expiry can complicate settlement on the short legs.
• Execution slippage: four legs mean four bid-ask spreads — fills matter on thin strikes.
• Limited reward: the peak profit is capped, so a perfectly-placed move still pays only the tent height plus credit.

Broken-wing butterfly vs long-call butterfly

A standard long-call butterfly has equal wings, always costs a debit, and carries small defined risk on both sides. The broken-wing version stretches one wing so the structure costs less — often a credit — and removes the loss on the skipped side entirely. The trade-off is a slightly larger capped loss on the narrow side. If you want a symmetric, lowest-cost-of-risk pin bet, use the plain butterfly; if you have a directional bias and want zero risk on one flank, the broken wing is the upgrade.

Broken-wing butterfly vs iron condor

An iron condor sells both a call spread and a put spread, so it has defined risk on both sides and a flat profit plateau between the shorts. A broken-wing butterfly concentrates the payoff into a single peak at the body strike and removes risk on one side. The condor wins when price stays in a broad range; the broken wing wins when price pins near your target and you want the skipped side completely safe.

Common adjustments

If price drifts toward the narrow wing, traders often roll the body strikes in the direction of the move or buy back the threatened short to cut the capped loss early. Some widen or tighten the narrow wing mid-trade to re-centre the peak. Because the structure is defined-risk, many simply let it run to expiry and accept the known outcome rather than over-managing the position.

Frequently asked questions

What is a broken-wing butterfly?

It is a butterfly spread with unequal wing widths — you skip a strike on one wing. This shifts or removes the risk on the skipped side and can often be opened for a net credit while keeping the butterfly's central profit peak.

Can a broken-wing butterfly be opened for a credit?

Yes. Widening one wing frequently collects a net credit instead of paying a debit. That credit means there is no loss on the skipped side — if the market runs hard in that direction, you simply keep the credit.

What is the maximum loss on a broken-wing butterfly?

The loss is defined and sits only on the narrow-wing side. It equals the wide-side strike gap minus any credit received, multiplied by the lot size. The skipped wing carries no loss when the trade is opened for a credit.

How is it different from an iron condor?

An iron condor has risk on both sides and a flat profit zone between the short strikes. A broken-wing butterfly removes risk on one side and has a single peak profit at the body strike, making it more directional and often cheaper to carry.

The bottom line

The broken-wing butterfly is the thinking trader's butterfly: by skipping a strike on one wing you keep the central profit peak, shift all the risk onto one defined side, and often get paid a credit to put the trade on. It rewards a neutral-to-mildly-directional view with a clean, capped risk profile and a free pass if the market gaps through the skipped side — a structure worth mastering once the plain butterfly feels comfortable.

Related strategies & terms

• Long-Call Butterfly — the symmetric parent with equal wings.
• Iron Condor — a wider neutral range trade with risk on both sides.
• Iron Butterfly — a credit butterfly built from a straddle and protective wings.
• Defined Risk · Breakeven · Theta