What Is a Broken Wing Butterfly Options Strategy?
A broken wing butterfly is an options strategy that modifies the standard butterfly spread by widening one wing — either to collect a credit at entry or to reduce the cost of the position. The tradeoff is accepting undefined (or substantially larger) risk on the wider side. It is not a beginner strategy, and it is meaningfully different from the defined-risk structures that form the basis of systematic income trading.
This article explains the structure, how it compares to an iron condor, and when traders actually use it.
What Is a Standard Butterfly?
A standard butterfly spread uses three equidistant strikes:
- Buy 1 option at the lower strike
- Sell 2 options at the middle strike
- Buy 1 option at the upper strike
Maximum profit occurs when the underlying lands exactly at the middle strike at expiration. Risk is capped on both sides.
When built with puts, this is a put butterfly. With calls, a call butterfly.
What Makes It "Broken Wing"?
In a broken wing butterfly, the strikes are not equidistant. One wing is wider than the other — hence the name.
Example using puts:
- Buy 1 put at the 390 strike
- Sell 2 puts at the 400 strike
- Buy 1 put at the 415 strike (widened from the standard 410)
That asymmetry has two direct consequences:
- The position can often be entered for a net credit (or much smaller debit) rather than a full debit
- The trade now carries large or effectively unlimited risk on one side — in this case, a sharp drop below the 390 put
The wider wing reduces upfront cost. In exchange, the trader accepts that a strong move through the open side can produce a much larger loss than a standard butterfly would.
How It Compares to an Iron Condor
| Feature | Iron Condor | Broken Wing Butterfly |
|---|---|---|
| Structure | 4 legs, both sides | 3 strikes (or 4 for skip-strike version) |
| Risk | Defined on both sides | Undefined or large on one side |
| Entry | Net credit | Net credit or small debit |
| Max profit zone | Wide range | Narrow zone near middle strike |
| Directional bias | Neutral | Mild directional |
| Monitoring required | Moderate | High |
Iron condors work best when you expect the underlying to stay within a range and want defined risk on both sides. A broken wing butterfly suits traders with a mild directional lean who are willing to accept meaningful risk in one direction.
For a full breakdown of iron condor mechanics, see Iron Condor Strategy Deep Dive. For context on why defined risk matters structurally, What Are Defined-Risk Options Strategies is a useful companion read.
Types of Broken Wing Butterflies
Put Broken Wing Butterfly
The wider wing is on the put (downside) side. Common when a trader expects the market to stay flat or rise gradually and wants to collect a credit. The risk is a substantial loss if the underlying falls sharply through the lower put.
Call Broken Wing Butterfly
The wider wing is on the call (upside) side. Used with a neutral-to-mildly-bullish view. A sharp rally through the upper call creates the large loss scenario.
Skip-Strike Butterfly
One strike is skipped rather than widened, creating a four-leg structure. Common in SPY and SPX trading. The skip-strike version produces a similar asymmetric payoff but with slightly different margin and fill characteristics.
When Traders Use Broken Wing Butterflies
This structure appears most often when:
- A trader wants to enter for zero or negative cost — meaning they collect a credit at the open
- Implied volatility is low enough that standard iron condors are not generating adequate premium
- The trader has a specific price target in mind for expiration and is willing to accept risk on the opposite side
- The underlying is range-bound but the trader expects a mild drift in one direction
Strike selection here requires more precision than a standard iron condor. Getting the middle strike wrong eliminates much of the advantage.
Key Risks
- The wider wing creates a zone of large or uncapped loss. If the underlying moves strongly through the open side, losses compound quickly.
- Active monitoring is non-negotiable. This trade cannot be set and forgotten the way a well-placed, defined-risk iron condor can.
- Liquidity at all strikes must be sufficient. Thin markets at one strike can make entering and exiting at a reasonable price difficult.
- Complexity increases execution error. A three- or four-leg order placed incorrectly — even one leg wrong — produces a completely different position.
For most options traders still building experience, an iron condor with defined risk on both sides is a more appropriate starting point. The risk profile is transparent, the mechanics are consistent, and the loss cap is known before entry. You can see how iron condors compare to other undefined-risk structures in Strangle vs. Straddle in Options Trading.
How Tradematic Approaches Strategy Selection
Tradematic is an automated iron condor trading platform. Every trade uses a four-legged structure with defined risk on both the upside and downside — no open wings, no undefined exposure. Tradematic is an automated iron condor trading platform that targets 90%+ probability setups using institutional market positioning data to select strikes.
The priority is capital protection over premium maximization. That means consistent structure, an account-level equity protection system, and no positions that carry theoretically unlimited loss potential.
For a more complex structure like a broken wing butterfly, a trader needs to supply their own directional thesis, manage strikes manually, and monitor closely. That is a different category of work — and a different risk profile — from what Tradematic is designed for.
Frequently Asked Questions
What is a broken wing butterfly in options? A broken wing butterfly is a modified butterfly spread where one wing is wider than the other. This asymmetry allows the position to be entered for a credit or reduced debit, but it creates a zone of large or unlimited loss on the wider side.
Is a broken wing butterfly the same as an iron condor? No. An iron condor has defined risk on both sides. A broken wing butterfly has risk that is either uncapped or substantially larger on one side. They are both multi-leg options strategies, but the risk profiles are different.
When does a broken wing butterfly make money? The position profits when the underlying lands near the middle strike at expiration and the short options expire worthless. The credit collected at entry is kept as long as the underlying stays out of the loss zone on the wider wing.
What is a skip-strike butterfly? A variation of the broken wing butterfly where one strike is skipped rather than widened. This produces four legs rather than three and is common in high-liquidity index products like SPY.
Should a beginner trade broken wing butterflies? Generally not. The undefined risk on one side and the precision required in strike selection make this more appropriate for experienced traders. The iron condor and standard vertical spreads are better starting points.
For a more straightforward approach to options income with defined risk on every trade, start your 7-day free trial at Tradematic — no commitment required.
Trading involves risk and losses can occur. Past performance does not guarantee future results. Options trading is not suitable for all investors. Only allocate capital you are comfortable risking.
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