A butterfly is a low-cost strategy that profits when the underlying finishes near a central strike. Buy 1 lower call, sell 2 middle calls and buy 1 up…
Profits from the underlying pinning a central strike, with low risk.
Curve at expiration · dashed line = breakeven · gold ticks = strikes
A butterfly is a low-cost strategy that profits when the underlying finishes near a central strike. Buy 1 lower call, sell 2 middle calls and buy 1 upper call. Max gain happens exactly at the middle strike.
Use it when you expect the underlying to pin near a target price. It is a low-volatility bet with very limited risk and excellent risk/reward if the underlying cooperates.
With the example values already loaded in the calculator above, this strategy returns:
The numbers above come from the same engine as the calculator — change the fields to see your own scenario.
The max loss is the debit paid and happens at the wings (below K1 or above K3). There are two breakevens; between them the trade profits, peaking at the center.
Selling the two middle options funds nearly all the cost of the bought ones, leaving a small net debit.
Not the same. In asymmetric butterflies the breakevens shift — that's why the calculator derives them straight from the curve, without assuming symmetry.