How to read a broken wing butterfly trade

A broken wing butterfly (BWB) combines a long option at a lower strike, two short options at a middle strike, and a long option at an upper strike, using the same option type and expiry. The two distances between strikes are unequal. That difference changes the payoff on either side of the middle strike.

This guide explains the fields in the trading journal. The dated posts are records of particular events. The example below is hypothetical and is not a trading recommendation.

What do the three strikes tell you?

In a 90 / 100 / 105 put structure, the lower wing is 10 points wide and the upper wing is 5 points wide. The middle strike is often called the body. The 1:2:1 ratio describes the structure, rather than the size of anyone's account.

Call and put butterflies can have different payoff shapes even when they use the same strikes. The direction of the wider wing matters too. A familiar strategy name is not enough to tell you the maximum loss.

The journal's reference price shows where the underlying stood at entry. If a body strike is 300 points above a reference price of 7,500, its starting distance is 4%. That calculation gives context, but it does not tell you the probability of reaching the strike or the chance of making a profit.

What is the difference between premium and a return?

An opening credit is money received for entering the complete spread. An opening debit is money paid. Any payoff calculation needs that direction, not just a positive premium number.

In the journal's closing convention, −0.5 means a 0.50-point debit to buy back the combination. It does not mean a 50% gain or loss. For a hypothetical opening credit of 1.85 points and a closing debit of 0.50 points, the price difference would be 1.35 points before fees and slippage. That is a per-unit price calculation, not a return on capital.

A return percentage needs a denominator: opening premium, maximum possible loss and broker-required capital are different measures. Calling the result a “take profit” exit records the exit reason; it does not establish that any one return formula is the right one.

A hypothetical put BWB payoff at expiry

Consider long one 90 put, short two 100 puts and long one 105 put, with a 1-point net opening credit. Ignore costs. For an underlying price S at expiry, profit or loss per unit is:

max(90 − S, 0) − 2 × max(100 − S, 0) + max(105 − S, 0) + 1

Illustrative expiration outcomes, in points per unit
Underlying at expiry	Profit / loss	What drives it
90 or below	−4	Unequal intrinsic values leave a loss after the credit.
94	0	The lower-side break-even point.
100	+6	The upper long put retains five points of intrinsic value, plus the credit.
105 or above	+1	All puts expire without intrinsic value; the opening credit remains.

Between the strikes, payoff is linear in this expiration model. Its maximum gain is 6 points and maximum loss is 4 points. These numbers follow from this particular structure and assumed credit; they are not universal BWB limits and are not executable market quotes.

What the expiration diagram leaves out

Before expiry, option values also reflect remaining time, volatility and the market's bid–ask spread. A theoretical payoff does not guarantee that the spread can be closed at the same value. Fees, liquidity and execution affect the actual result.

Exercise style, settlement and assignment risk depend on the contracts used. Check the exchange's product specifications rather than transferring assumptions from one underlying to another. The OIC call butterfly guide and put butterfly guide explain the standard equal-wing structures; the unequal wings in this example require their own arithmetic.

A recorded delta or VIX reading is a snapshot. Neither is a fixed forecast, a maximum-loss estimate or a measure of a person's whole portfolio. Likewise, a series of take-profit closes does not establish a strategy's long-term expectancy without its losing trades, costs and capital requirements.

Use the guide with a real record

Read an opening and its linked closing entry together. Check the dates, type, expiry, strikes, wing widths and quoted prices before interpreting the result. The journal retains separate event dates so the sequence stays visible.

For longer-term planning, the financial tools focus on living costs, FIRE and retirement. They answer different questions from a short-term options payoff.