Neutral · Low-cost · Defined risk
Long Call
Butterfly
A cheap, defined-risk way to bet the market pins near a level by expiry. Small cost, large payoff if you're right on the target — here's the build and the numbers.
What it is
A long call butterfly combines three strikes: buy 1 lower-strike call, sell 2 middle-strike calls, and buy 1 higher-strike call (strikes equally spaced, same expiry). It's a low-cost, defined-risk bet that the underlying finishes near the middle strike.
Key facts
- Market view: neutral — expecting price to pin near a target by expiry.
- Construction: Buy 1 lower call + Sell 2 middle calls + Buy 1 higher call.
- Net cost: a small debit.
- Max profit: (middle − lower strike) − net debit, at the middle strike.
- Max loss: the net debit paid.
- Breakevens (two): lower strike + debit, and higher strike − debit.
A tent peaking at the middle strike — maximum profit if price pins there, with loss capped at the small debit on either wing.
Worked NIFTY example
NIFTY at 22,500. Buy 22,400 call, sell two 22,500 calls, buy 22,600 call for a net debit of 30 (illustrative):
- Max profit: (22,500 − 22,400) − 30 = 70, at 22,500.
- Max loss: 30 (the debit), below 22,400 or above 22,600.
- Breakevens: 22,430 and 22,570.
When to use it
- You have a specific price target and expect low volatility into expiry.
- You want a high reward-to-risk ratio with strictly limited cost.
Risks to respect
- The profit zone is narrow — you need price to land near the middle strike.
- Four legs mean more charges; best managed close to expiry.
Build a butterfly live
Set the three strikes on TradePulse's strategy builder and see the tent payoff, breakevens and max profit.
Related strategies
- Iron Condor — a wider, flat-topped range play.
- Calendar Spread — a time-based neutral play.
- What is max pain? — useful for picking the middle strike.