Broken Wing Butterfly: Asymmetric Risk for Directional Bias
You expect the stock to stay flat but are biased slightly bullish or bearish. A broken wing butterfly lets you move one wing out farther than the other, collecting more premium on your bias side and accepting larger loss risk on the opposite wing. It is a butterfly with directional lean.
- Exactly what you buy and sell: a butterfly with asymmetric spreads
- The payoff: directional bias, higher premium on close wing, larger loss risk on wide wing
- Your numbers: net credit, asymmetric max profit and loss, breakevens on both sides
- When a broken wing butterfly fits and why it is a butterfly with directional tilt
A broken wing butterfly is a butterfly with directional bias. You keep the profit zone narrow on your bullish or bearish side (collecting more premium), but you widen the risk zone on the opposite side (accepting larger loss if you are wrong). It is the butterfly for traders who are mostly flat but want to tilt the odds toward their bias.
What You Actually Do
Apple trades at $200. You expect it to stay mostly flat but are biased slightly bullish. You sell one 1-month $210 call for $1.50 a share, $150, buy one 1-month $220 call for $0.25 a share, $25 (narrow wing on the upside). You sell one 1-month $190 put for $0.75 a share, $75, buy one 1-month $175 put for $0.10 a share, $10 (wider wing on the downside).
Your net credit: $150 plus $75 minus $25 minus $10 = $190 collected. That is your max profit on upside stillness. Your max loss on the upside: $10 spread minus credit, about $0.10 per share. Your max loss on the downside: $15 spread minus credit, about $1.40 per share. You have biased your risk/reward toward bullish, collecting more premium but accepting larger downside loss if wrong.
The Payoff, Drawn
Drag the slider to see how you do at different ending prices for Apple (at 1-month expiration).
The shape is an asymmetric tent. Between $190 and $210, you profit the full $190 (the sweet zone where your bias lives). Above $220, losses are small (the call wing is tight). Below $175, losses are large (the put wing is wide). The key: you collect more premium by accepting larger downside risk, tilting the trade toward your bullish bias.
The Broken Wing: Directional Tilt on a Butterfly
A broken wing butterfly is a butterfly tuned to your bias.
A symmetric butterfly charges you equally for upside and downside risk. A broken wing lets you shift that cost: pay less for protection on the side you want to profit from (close wing, tight spread) and accept more risk on the side you fear (far wing, wide spread). You collect more total premium but create asymmetric loss risk.
The math is elegant: if your bullish bias is correct, the tight call wing caps your loss and the wide put wing never blows up. If you are wrong and the stock crashes, the wide put wing gets expensive. But the extra premium you collected ($190 vs the $150 a symmetric butterfly would yield) gives you a buffer.
When a Broken Wing Butterfly Fits
- You expect the stock mostly flat but biased bullish or bearish
- You want more premium than a symmetric butterfly
- You can accept asymmetric risk on your weaker bias side
- You expect a big move on your bias side (use that directional strategy instead)
- IV is low and premiums are thin
- You want balanced, symmetric risk (use symmetric butterfly)
A broken wing butterfly is for the trader with a mild directional bias who wants to collect more premium than a butterfly while accepting skewed risk. It is not for traders with strong directional conviction or anyone who cannot tolerate larger loss risk on the wide wing.
A Worked Example
Walk through three scenarios: you collected $190 net upfront (bullish bias).
Apple stays at $200. All four legs expire worthless or at their intrinsic values (stock stayed between $190 and $210). You keep nearly the full $190 credit. Profit: ~$190. Perfect stillness win for your bullish bias.
Apple rises to $216. The tight call spread (between $210 and $220) is ITM: you owe about $300. The put spread is worthless. Your net: $190 credit minus $300 loss = -$110 loss. Your bullish bias capped the upside loss because you only risked $10 spread on the call side.
Apple crashes to $168. The wide put spread (between $190 and $175) is ITM: you owe about $1,300. The call spread is worthless. Your net: $190 credit minus $1,300 loss = -$1,110 loss. This is why you never sell a broken wing against your bias: the wide wing is the insurance you accept for collecting more premium on the close wing.
That is the broken wing butterfly: more premium on your bias side, but larger loss if the market breaks the opposite direction.
- A broken wing butterfly is a butterfly with asymmetric wings: tight on your bias, wide on the opposite side.
- Max profit is the net credit collected; max loss is larger on the wide wing.
- Directional bias is built in: collect more premium but accept larger loss risk on the unfavored direction.
- It fits traders with mild directional bias who want higher premiums and can tolerate asymmetric risk.
Pop Quiz
Two quick checks. Pick an answer and the explanation shows up right away.
You are bullish on Apple. Should your broken wing butterfly have the tight wing on the call side or put side?
If you are bullish, you want to cap loss on the upside (tight call spread) and accept larger loss on the downside (wide put spread). This lets you profit on your bullish bias while collecting more premium than a symmetric butterfly.
You sell a $210 call for $1.50, buy a $220 call for $0.25, sell a $190 put for $0.75, buy a $175 put for $0.10. What is your net credit?
You collect $150 from the call and $75 from the put, and pay $25 + $10 = $35 for the bought options. Net credit is $225 minus $35 = $190, or $1.90 per share.
Bottom Line
A broken wing butterfly is the broken wing butterfly is the directionally biased butterfly for traders who want to collect more premium than a symmetric butterfly while tilting risk toward their bias. If your bias is right and the stock stays mostly flat on your side, you profit handsomely. If you are wrong and the market breaks the opposite direction, the wide wing absorbs the loss. It is a smart way to align your risk/reward with your outlook while harvesting extra premium. Reach for it when you have a mild directional lean, IV is high, and you can accept asymmetric risk on the direction you fear.