Long Butterfly

Type of Strategy



neutral, bullish, or bearish

implied volatility

varies by stock price, but generally high iv


Long butterfly spreads are generally defined risk, low probability trades comprised of two short options in the middle of an equidistant long option on each side.  The probability of profit can be adjusted based on the distance between the short strikes and the long strikes.  Butterfly spreads can be established entirely with calls, puts, or with a combination of both (iron butterfly).

Long butterfly spreads are not recommended for common use, although variations such as broken-wing and broken-heart butterflies may provide value for traders and investors.


Sell two options with the same strike price at the center of the desired butterfly spread (generally ATM).

Purchase an equidistance corresponding long option for each short option, one below the short strike and one above the short strike.  The long option type should match the short option type.

example – ETSY

Trader wishes to execute a long butterfly spread in ETSY stock with a 58 DTE cycle.  An iron butterfly is chosen for the trade, equivalent to a short call spread and a short put spread with both short strikes at the same price.

1) In an offensive account (tax-free), sell a 58 DTE, 50 delta put option with strike price of $200 for a credit of $21.30.

2) In an offensive account (tax-free), sell a 58 DTE, 50 delta call option with strike price of $200 for a credit of $20.63.

3) In an offensive account (tax-free), buy a 58 DTE, 24 delta put option with strike price of $170 for $9.10.

4) In an offensive account (tax-free), but a 58 DTE, 33 delta call option with strike price of $230 for $9.78

5) Total net credit = $23.05, which is the maximum profit for the position

6) Break-Even points are $176.95, $223.05  {$200 +/- $23.05}

7) Maximum loss = $6.95  {$30 spread – $23.05 net credit}


Once the spread has been sold, the trader may place a GTC BTC order for $17.30 (25% max profit level).

As a defined risk strategy with a narrow profit target, there is little management available.  Risk management must be prioritized on order entry.  In specific environments, it may be possible to roll the untested side of a butterfly toward the stock price for a small credit.

Beyond setting profit targets, there is little management available in a calendar spread.  As the spread nears expiry, the trader may adjust the sale price to gain maximal value from the position.

The financial return profile of a calendar spread is an imperfect approximation, as changing market conditions may significantly alter actual spread performance.

Butterfly Spread: ETSY