Long Call Butterfly
Buy one call, sell two calls at a higher strike, and buy one call higher still. A low-cost bet that the stock finishes near the middle strike.
Written by the MarketWrench team. Examples are worked with the same Black-Scholes model used in our calculators (4% rate, no dividends unless stated) and are reviewed for accuracy before publishing. How we create content.
Payoff at expiration
When traders use it
You expect the stock to stay near a specific price by expiration.
Formulas (per share; ×100 per contract)
| Max profit | (Middle − lower strike) − net debit |
| Max loss | Net debit |
| Breakevens | Lower strike + debit and upper strike − debit |
Key risks
The profit zone is narrow and the max profit only happens near the middle strike at expiration. Four legs mean more commissions and wider combined spreads.
How it works
With equal spacing, buy 1 lower call, sell 2 middle calls, buy 1 upper call. The two short calls pay for most of the long calls, so the cost is small. Before expiration the position moves slowly, and most of the profit comes in the final weeks if the stock is near the middle.
Worked example HYPOTHETICAL
Hypothetical example only — not real prices or a recommendation. Stock at $100. Buy the 30-day $95 call for $6.65, sell two $100 calls for $3.59 each, and buy the $105 call for $1.66. Net debit $1.13 ($113). Max profit $387 at $100. Breakevens $96.13 and $103.87.
| Stock price at expiration | P/L (1 contract, excl. fees) |
|---|---|
| $90 | −$113 |
| $96.13 | $0 |
| $100 | +$387 |
| $103.87 | $0 |
| $110 | −$113 |
Market outlook: when to use it
Use when: Low expected movement, often after an event when IV has dropped, or to target a price cheaply.
Avoid when: When you expect a large move in either direction.
The Greeks, in plain words
| Delta | Near zero at the middle strike. |
| Theta | Positive near the middle strike, negative far away. |
| Vega | Negative: falling IV usually helps. |
| Gamma | Negative near the middle strike. |
Choosing strikes and expiration
Center the middle strike at your target price. Wider wings cost more but widen the profit zone. 2–6 weeks is common. See how to pick a strike and expiration.
Managing the trade
Many traders take profits at 25–50% of max profit rather than waiting for a perfect pin, and close before expiration to avoid assignment on the short calls.
Common mistakes
- Expecting to earn the full max profit; it needs a near-perfect finish.
- Ignoring commissions on four legs.
- Uneven strike spacing by accident, which changes the risk.
FAQ
Can I build a butterfly with puts?
Yes. A long put butterfly with the same strikes has nearly the same payoff.
What is an iron butterfly?
A version using a short straddle plus long wings; it collects a credit instead of paying a debit.
Explained simply
You pay $113. If the stock ends exactly at $100 you make up to $387. If it ends far from $100, you lose the $113.
Not financial advice
This page is for educational and informational purposes only. It is not financial, investment, tax, or legal advice, and it is not a recommendation to buy or sell any security or to use any strategy. All examples use hypothetical numbers. Options involve risk and are not suitable for everyone. Do your own research and consider talking to a licensed professional before trading.
Read next
Theta and Time Decay · What Is Implied Volatility? · All Learn articles
Related strategies
Iron Condor · Long Straddle · Bull Call Spread
Watch: further explanation
Video coming soon. Our Butterfly walkthrough is in production. Meanwhile, browse the MarketWrench YouTube channel.
Calculators for this strategy
Options Profit Calculator · Probability of Profit Calculator · Assignment Risk Checker · IV Rank Calculator