← Back to strategy library
Options · Defined risk
Butterfly
A low-cost, defined-risk structure targeting a narrow price area at expiration.
NeutralAdvanced
Strategy mechanics
What the structure is designed to do.
A long Butterfly combines one long option at a lower strike, two short options at a middle strike and one long option at a higher strike, all with the same expiration.
The highest payoff occurs when the underlying finishes near the middle strike. The trade-off for the defined and relatively low entry cost is a narrow profit zone that becomes more sensitive as expiration approaches.
Risk check
This page is educational. Suitability depends on your objectives, experience, portfolio and ability to absorb loss.
Read the OCC options disclosurePayoff profileButterfly
At expirationMaximum profit at the middle strike; loss is limited to the debit outside the wings.
The setup
- Buy one option at lower strike A
- Sell two options at middle strike B
- Buy one option at higher strike C
Decision map
Know the trade-offs before entry.
- When it fits
- A low-volatility outlook with the underlying expected near strike B at expiration.
- Break-even
- Lower strike plus debit, and upper strike minus debit.
- Maximum profit
- Strike width minus the net debit, when price finishes at the middle strike.
- Maximum loss
- The net debit paid.
- Time decay
- Can help near the middle strike and hurt outside the target area.
- Primary risk
- The underlying finishing outside the narrow profit zone.
Need this adapted to your workflow?
Discuss automation