Long Butterfly Spread
A long butterfly spread is a limited-risk options strategy built around a target price. It combines three strikes to create a defined-risk, defined-reward position — in OptionLab, this is the Long Butterfly template.
Key Facts
- Market Outlook
- Neutral — expects the underlying to finish near the middle strike at expiration.
- Construction
- Buy 1 lower-strike call, sell 2 middle-strike calls and buy 1 higher-strike call, all with the same expiration. The figures below assume equally spaced strikes, with the middle strike the same distance from each outer strike. Opened for a net debit.
- Max Profit
- Middle strike − lower strike − net debit, if the underlying finishes exactly at the middle strike.
- Max Loss
- The net debit, if the underlying finishes at or below the lower strike or at or above the higher strike.
- Breakeven(s)
- Two: lower strike + net debit, and higher strike − net debit.
- At Expiration
- Profit is highest at the middle strike and falls in a straight line to the maximum loss at each outer strike. With unequally spaced strikes, the two sides of the payoff differ and these formulas no longer apply exactly.
Per share, at expiration (at the near-term expiration for calendar and diagonal spreads). Assumes the position is held until then and ignores commissions, taxes, dividends and early assignment.
Defined Risk. Defined Opportunity.
Long call butterfly — capped risk, capped reward, built around a target price.
Illustrative example — not live market data.
Manual Market — Go Beyond a Single Expiration
Manual Market lets you set expiration dates independently for each leg and model positions with your own inputs — without depending on OptionLab's built-in US or Israel market data. Explore more advanced positions shaped by both price and time.
Related Strategies
How It Works
A butterfly spread uses three strikes with the same expiration. Built with calls, a long call butterfly buys one lower-strike call, sells two middle-strike calls, and buys one higher-strike call. The same basic payoff can also be built using puts, as a long put butterfly.
Because every leg is bought or sold at the same time, both the maximum profit and the maximum loss are defined from the start. Profit is highest around the middle strike at expiration, and shrinks as the underlying moves away from that target area. A butterfly spread also has two breakeven points — one below and one above the middle strike.
Worked Example
This example uses its own inputs and is separate from the illustrative chart above.
- Underlying price: $100
- Time to expiration when premiums were calculated: 30 days
- Implied volatility: 25%
- Risk-free rate: 5%
- Premiums: theoretical values from OptionLab's Black-Scholes function — the same model as OptionLab's Black-Scholes Calculator. They are not live market quotes.
- Results: calculated at expiration by OptionLab's exact payoff engine.
- Amounts: per share. Contract-level amounts depend on the contract multiplier — for example, multiply by 100 for standard US equity options.
| Leg | Option | Strike | Premium |
|---|---|---|---|
| Buy 1 | Call | $90 | $10.56 |
| Sell 2 | Call | $100 | $3.06 |
| Buy 1 | Call | $110 | $0.36 |
| Net Debit | Max Profit | Max Loss | Breakevens |
|---|---|---|---|
| $4.80 | $5.20 | $4.80 | $94.80 and $105.20 |
At expiration: If the underlying finishes at $100, the $90 call is worth $10 and the other calls expire worthless, for the maximum profit of $5.20. At or below $90, or at or above $110, the loss is the $4.80 debit.
Build a Butterfly Spread in OptionLab
Build a Butterfly Spread leg by leg in OptionLab by selecting the strikes and contracts you want to analyze. OptionLab shows you the payoff graph, breakeven points, and maximum profit and maximum loss as soon as your legs are in place.
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