Broken Wing Butterfly BWB
A butterfly with deliberately unequal wings, skewed to cheapen it and move the risk.
Quick Answer
A Broken Wing Butterfly is a defined-risk butterfly with deliberately unequal wing widths, skewed so the structure costs almost nothing and the loss is small on one side and larger on the other, moving risk toward the direction the trader considers less likely.
Broken Wing Butterfly: key takeaway
A broken wing butterfly skews the wings to make one side almost free, but the risk it seems to shed simply moves to the broken side — so the skill is not in getting a butterfly for nothing, it is in choosing which side you are willing to be wrong on.
Broken Wing Butterfly at a glance
| Category | Neutral Strategies |
|---|---|
| Market outlook | Neutral |
| Risk | Defined risk |
| Net flow | Debit |
| Difficulty | Advanced |
| Legs | Buy 1 lower call + sell 2 middle calls + buy 1 higher call with an unequal wider wing |
| Max profit | ₹294/unit · ₹19,110 per lot |
| Max loss | ₹106/unit · ₹6,890 per lot |
| Breakeven | 23,906 and 24,494 |
Broken Wing Butterfly in simple words
A broken wing butterfly is a normal butterfly with one wing stretched wider than the other. In an ordinary butterfly both wings are the same distance from the body; here one is deliberately made wider, which changes the cost and the risk. The payoff between the wings can be made to open for almost no cost, or even a credit, but the wider wing leaves a larger possible loss on that side and a very small one on the other. Traders skew the wings to make the position cheaper or to shift the risk toward the direction they think is less likely to happen. The total risk does not vanish — it just moves.
Payoff diagram
Profit & loss at expiry — Broken Wing Butterfly
| Leg | Action | Type | Strike | Premium | Qty |
|---|---|---|---|---|---|
| 1 | Buy | Call | 23,900 | ₹500 | 1 |
| 2 | Sell | Call | 24,200 | ₹325 | 2 |
| 3 | Buy | Call | 24,600 | ₹156 | 1 |
Broken Wing Butterfly: professional explanation
What breaks the wing
This broken wing butterfly buys the 23,900 call, sells two 24,200 calls, and buys the 24,600 call. The lower wing is 300 points wide (23,900 to 24,200) and the upper wing is 400 (24,200 to 24,600) — deliberately unequal, which is what makes it broken. In a symmetric butterfly both wings would be equal and the cost higher. Widening the upper wing reduces the price of the far long call, cutting the net debit to just 6 per unit here, close to costless, in exchange for a different, asymmetric risk profile.
Where the small and large losses sit
Below 23,900 every call expires worthless and the loss is just the 6-point debit — a negligible ₹390 on a lot. The peak is at 24,200, where the 23,900 call is worth 300 and the shorts expire: payoff = 300 − 6 = 294 per unit, ₹19,110. Above 24,600 the intrinsic values net to −100, so with the debit the loss is 106 per unit, ₹6,890 — the maximum loss, on the broken (upper) side. The asymmetry is explicit: the loss is small on the downside and larger on the broken upside, because the wider wing gives less protection there.
The breakevens and the skew
The lower breakeven is the base strike plus the debit, 23,900 + 6 = 23,906. The upper breakeven is on the downslope from the peak, at 24,200 + 294 = 24,494. Between these the position profits, peaking at 24,200. The skew here has moved the larger loss to the upside and made the downside almost free, which suits a trader who considers a sharp rally less likely than a hold or drift. Reverse the skew — a wider lower wing — and the small loss moves to the upside instead.
Skewing moves risk, it does not remove it
The central point of a broken wing butterfly is that skewing the wings always relocates risk rather than eliminating it. Making one side almost free necessarily makes the other side's loss larger or the peak narrower; the total risk the market prices cannot be conjured away by choosing strikes. A trader uses the skew to align the small loss with the outcome they consider more likely and to accept the larger loss where they consider it less likely. It is a way to express a directional lean within a defined-risk, butterfly-shaped position, not a way to get a butterfly for free.
Construction
- Buy one lower-strike call (here the 23,900 call) as the near wing.
- Sell two middle-strike calls (the 24,200 calls) to form the body at the target level.
- Buy one higher-strike call (the 24,600 call) as the far wing, placed deliberately wider than the near wing.
- Confirm the unequal wing widths (300 below, 400 above) and the resulting small net debit, and note which side carries the larger capped loss.
Market outlook
A trader may study a broken wing butterfly when the view is neutral with a directional lean and a near-costless, defined-risk expression is preferred. The skew is chosen so the small loss aligns with the more likely outcome and the larger loss sits where a move is considered less likely — here the downside is almost free and the broken upside carries the larger loss. It wants price to drift toward the body strike by expiry and, being net short the body, benefits from falling volatility. The condition that invalidates it is a decisive move into the broken side, realising the larger capped loss.
Risk profile
The broken wing butterfly is a defined-risk position: both wings are long calls that cap the two short body calls, so the loss cannot exceed a known amount on either side. The asymmetry is the point — here the downside loss is only the 6-point debit, ₹390 on a lot, while the broken upside loss is 106 per unit, ₹6,890 on one NIFTY lot of 65. Both are capped and known before entry. Before expiry the net-short body gives negative gamma near the peak, so a move up through the shorts marks against the position quickly; on cash-settled index options there is no assignment risk.
Maximum loss, stated three ways
As a formula: On the broken (wider) side: (broken-wing width − near-wing width − net debit)... in practice (combined intrinsic above the far strike + debit) × lot size = 106 × 65 = ₹6,890, above 24,600. On the other side the loss is only the net debit, 6 × 65 = ₹390.
Computed from the illustrative legs: ₹106 per unit, i.e. ₹6,890 for one NIFTY lot of 65.
Breakevens: Lower breakeven = base strike + net debit = 23,900 + 6 = 23,906. Upper breakeven = body strike + (near-wing width − net debit) = 24,200 + 294 = 24,494. → 23,906 and 24,494.
Reward profile
The maximum reward is the near-wing width minus the debit, times the lot size — (300 − 6) × 65 = 294 × 65 = ₹19,110 — earned if the underlying settles at the body strike of 24,200. Away from the peak the reward tapers to the breakevens at 23,906 and 24,494. Because the structure is opened for only a small debit, the reward is large relative to what is risked to enter, though it remains a point outcome at the body strike rather than a broad plateau.
Maximum profit
As a formula: (Near-wing width − net debit) × lot size, at the body strike. Here (300 − 6) × 65 = 294 × 65 = ₹19,110, realised if the underlying settles at 24,200.
Computed from the illustrative legs: ₹294 per unit, i.e. ₹19,110 for one NIFTY lot.
Margin requirement
Because the two short body calls are covered by two long wings, the exchange grants spread benefit and margin reflects the net capped structure rather than naked shorts. The asymmetric wing does not remove the hedge, so the requirement stays modest, close to that of a spread. SPAN plus exposure applies, it can rise as price approaches the short strikes, and NSE and brokers revise the formulas periodically.
Greeks exposure
Delta is close to neutral and slightly negative at the reference spot: the profit peak sits just above, but the two short body calls hold the net delta down, and it turns more negative as price climbs through the body toward the broken side.
Gamma is close to neutral at the body strike, where the short body and long wings nearly offset, and turns negative as price moves off the peak, most sharply into the broken side.
Theta is positive when price is near or below the body strike, because the net-short body decays in the position's favour as expiry approaches.
Vega is negative near the peak because the two short body calls outweigh the wings in volatility sensitivity, so falling implied volatility lifts the position toward its peak.
Rho is negligible for this monthly index structure; interest rates are not a meaningful driver.
The sign on each Greek above is computed, not asserted: it is the net exposure of the illustrative legs at spot 24,000 with 30 days to expiry, priced with Black–Scholes using each leg's implied volatility calibrated from its own quoted premium. A sign can flip as the underlying moves — the panels below show where. See Methodology.
Net Greeks across underlying prices
Volatility impact
Near its peak the broken wing butterfly is short volatility, being net short the two body calls, so falling implied volatility lifts it toward its maximum and rising volatility flattens it and marks it down. That is why it is generally opened when volatility is elevated and expected to ease. The skew does not change this volatility character; it changes where the capped losses sit. A volatility spike into the broken side is doubly unhelpful, both lowering the mark and often accompanying the move that carries price toward the larger capped loss above the far strike.
Sensitivity to implied volatility
Time decay
Time decay works for the broken wing butterfly once price is near or below the body strike, because the net-short two body calls lose their time value in the position's favour, and the peak sharpens at 24,200 as expiry nears. If price has moved into the broken side above the far strike, the position sits near its larger capped loss and decay has little further to do. On the almost-free side, time simply confirms the small debit. The structure therefore wants time to pass with price resting near the body, and it is most sensitive to decay in the final two weeks.
Value of the position as expiry approaches
Broken Wing Butterfly: practical examples
NIFTY example
Using the 30-day chain: buy the 23,900 call at ₹500, sell two 24,200 calls at ₹325 each (collecting ₹650), and buy the 24,600 call at ₹156. Net debit = (500 + 156) − 650 = 656 − 650 = ₹6 per unit, or 6 × 65 = ₹390 for one lot — the loss on the downside. The lower wing is 300 wide and the upper 400, so the peak at 24,200 is (300 − 6) × 65 = 294 × 65 = ₹19,110. Above 24,600 the intrinsic values net to −100, so the broken-side loss is (100 + 6) × 65 = 106 × 65 = ₹6,890. Breakevens are 23,906 and 24,494. A settlement at 24,200 pays ₹19,110; below 23,900 it loses ₹390; above 24,600 it loses ₹6,890. Figures exclude brokerage, STT and other charges.
BANKNIFTY example
Illustrative BANKNIFTY premiums, spot near 52,000, lot 30: buy the 51,600 call at ₹560, sell two 52,000 calls at ₹360 each (collecting ₹720), and buy the 52,800 call at ₹120. Net debit = (560 + 120) − 720 = 680 − 720 = −₹40, i.e. a ₹40 credit per unit, or 40 × 30 = ₹1,200 collected on one lot. The lower wing is 400 wide and the upper 800, so the peak at 52,000 is (400 + 40) × 30 = 440 × 30 = ₹13,200. Above 52,800 the intrinsic values net to −400, so the broken-side loss is (400 − 40) × 30 = 360 × 30 = ₹10,800; below 51,600 the position keeps the ₹1,200 credit. Premiums are illustrative and lot sizes are those as of July 2026; figures exclude transaction costs.
Lot sizes used above (NIFTY 65, BANKNIFTY 30) are those in force as of July 2026; NSE revises them periodically. Figures exclude brokerage, STT, exchange charges, stamp duty and GST, all of which materially affect small spreads.
Common misconceptions about Broken Wing Butterfly
- Misconception: Skewing a butterfly's wings removes its risk.
Reality: No — it relocates it. Making one side almost free necessarily makes the other side's capped loss larger or the peak narrower. The total risk the market prices cannot be removed by choosing strikes; the skew only shifts where the loss sits.
Common mistakes with Broken Wing Butterfly
- Believing the skew makes the butterfly cheaper without cost — it only moves risk, leaving a larger capped loss on the broken side or a narrower peak.
- Placing the larger capped loss on the side price is more likely to move toward, so the small loss aligns with the wrong outcome.
- Expecting the full peak profit regardless of settlement — it is earned only near the body strike, and a move into the broken side turns the position into its larger loss.
- Opening it when implied volatility is low and likely to rise, which works against a structure that is short volatility near its peak.
- Confusing the near-costless entry with low risk, when the broken side still carries a capped loss many times the debit.
- Ignoring the negative gamma into the broken side, where a move near expiry marks the position down quickly before the far wing fully engages.
Advantages & disadvantages
Advantages
- The structure can be opened for a very small debit or even a credit by skewing the wings, so little or nothing is risked to enter.
- Both sides are capped by long wings, so the position is defined risk despite the asymmetric construction.
- The skew lets a trader align the small loss with the more likely outcome and place the larger loss where a move is considered less likely.
- Time decay and falling volatility both help the position once price is near or below the body strike.
- On cash-settled index options there is no assignment risk, so the three-strike structure settles cleanly at the exchange settlement price.
Disadvantages
- The broken side carries a larger capped loss — here 106 per unit against a 6-point debit — so a move that way costs far more than entry.
- The full peak profit is concentrated near a single level, so the attractive payoff is a point outcome, not a broad one.
- Skewing does not remove risk; it relocates it, and a wrong read of which side is less likely places the larger loss in the wrong place.
- Negative gamma into the broken side means a move that way near expiry marks against the position quickly.
- Being short volatility near the peak, it is marked down by a volatility spike, which often accompanies the move toward the broken side.
Adjustments & exits
- Rolling the far broken wing closer as price approaches it, reducing the capped loss on that side at the cost of paying premium and lowering the peak.
- Rolling the whole structure up or down to re-centre the peak on the new price, which collects or pays premium and resets where the small and large losses sit.
- Closing the position once a large fraction of the peak value is realised, to bank the gain before late gamma into the broken side can reverse it.
- Converting toward a symmetric butterfly by adjusting the far wing, paying to equalise the risk if the directional lean that justified the skew has weakened.
Adjustment is a decision about risk, not a way to rescue a losing view. See Adjustments and Exit Planning.
How professionals use the Broken Wing Butterfly
Desks use broken wing butterflies to express a defined-risk directional lean at very low cost, skewing the wings so the near-costless side faces the more probable move and the larger capped loss sits where a move is deemed unlikely. They size the structure by the local gamma and vega it adds and hedge residual delta with futures, holding many across strikes so the book, not one trade, carries the view. Retail traders can replicate the exact strikes but not the cross-margin or execution quality, so while the structure is accessible, the ability to warehouse and adjust it cheaply is not.
Broken Wing Butterfly: frequently asked questions
Why is it called a broken wing?
Because one wing is stretched wider than the other, breaking the symmetry of a normal butterfly. Here the lower wing is 300 points wide and the upper 400. That deliberate asymmetry is what cheapens the structure and relocates the larger capped loss to one side.
What is the maximum profit on a broken wing butterfly?
The maximum profit is the near-wing width minus the debit, times the lot size, at the body strike. On the illustrative NIFTY chain that is (300 − 6) × 65 = ₹19,110, if NIFTY settles at 24,200.
What is the maximum loss on a broken wing butterfly?
It is asymmetric. On the broken side the loss is capped at 106 per unit, ₹6,890 on a NIFTY lot, above 24,600; on the other side it is just the 6-point debit, ₹390. Both are capped and known before entry.
Where are the breakevens on a broken wing butterfly?
The lower breakeven is the base strike plus the debit, and the upper is the body strike plus the near-wing width minus the debit. On the illustrative chain that is 23,906 and 24,494. Between them the position profits, peaking at the body strike.
Can a broken wing butterfly be opened for a credit?
Yes. Widening the broken wing enough can turn the small debit into a net credit, as in the illustrative BANKNIFTY example. A credit means the near-costless side keeps the credit, but the broken side still carries the larger capped loss.
Is a broken wing butterfly bullish or bearish?
It is neutral with a directional lean set by the skew. Here the downside is almost free and the broken upside carries the larger loss, suiting a trader who considers a sharp rally less likely. Reversing the skew places the larger loss on the downside instead.
Does a broken wing butterfly benefit from time decay?
Yes, once price is near or below the body strike, because the net-short two body calls decay in the position's favour and the peak sharpens near expiry. If price is in the broken side, the position sits near its larger loss and decay has little effect.
How does volatility affect a broken wing butterfly?
Near its peak it is short volatility, so falling implied volatility lifts it while rising volatility marks it down. It is generally opened when volatility is elevated and expected to ease. The skew changes where losses sit, not this volatility character.
Broken Wing Butterfly: voice-search questions
Natural-language questions people ask about the Broken Wing Butterfly.
What is a broken wing butterfly?
A broken wing butterfly is a butterfly with one wing stretched wider than the other. That skew makes it open for almost nothing, with a tiny loss on one side and a bigger capped loss on the broken side, and the biggest payoff near the middle strike.
Does a broken wing butterfly have limited risk?
Many do — the property is defined risk, where long options cap the loss. A broken wing butterfly is one: both wings are long calls that cap the loss on each side, though the caps are unequal. Iron condors and butterflies share the property. There is no single answer.
Does a broken wing butterfly really cost nothing?
It can open for a tiny debit or even a credit, but not for free in risk terms. The near-costless entry is paid for by a larger capped loss on the broken side. Skewing the wings moves risk rather than removing it.
People also ask about Broken Wing Butterfly
Questions answered in depth on their own pages:
Sources & references
Published 9 July 2026. Educational content only — not investment advice.