Broken Wing Butterfly: The Directional Spread That Can't Lose on One Side
Summary
A standard butterfly has symmetrical wings. A broken wing butterfly (BWB) widens one wing, skipping one or more strikes. This modification creates a credit entry (instead of a debit) and eliminates risk on the wide side. The trade-off: the narrow side has increased risk, and the sweet spot is narrower. BWBs are directional trades disguised as neutral spreads, ideal for moderate bullish or bearish views with defined risk.
Key Takeaways
A put BWB is constructed by buying 1 OTM put, selling 2 ATM puts, and buying 1 further OTM put at an asymmetric distance from the center. When entered for a credit, the position cannot lose money if the stock stays above the center strike (upside is free). Maximum profit is at the center strike. Risk exists only below the narrow wing. BWBs are popular on SPX for 0DTE and weekly trading because they offer asymmetric risk-reward on a directional thesis.
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Standard butterflies are beautiful in theory but frustrating in practice: they require the stock to land precisely on the center strike. The broken wing butterfly solves this by allowing profit across a wider range on one side at the cost of narrower profit on the other.
Structure: Put Broken Wing Butterfly (Bullish)
Buy 1 put at the higher strike (slightly OTM) Sell 2 puts at the center strike (ATM or slightly OTM) Buy 1 put at a lower strike (further OTM, wider gap than the upper wing)
Example on SPX at 5,300:
Net credit: $24.00 - $18.00 - $4.50 = $1.50
Wing Widths
Payoff Profile
SPX above $5,310: All puts expire worthless. You keep the $1.50 credit ($150). Zero risk.
SPX at $5,280 (center strike): Maximum profit. The upper put is worth $30, the two short puts are worthless, the lower put is worthless. Profit: $30 + $1.50 credit = $31.50 ($3,150 per BWB).
SPX at $5,230 (lower wing): The upper put is worth $80, the two short puts are worth $100 total, the lower put is worthless. Loss: $100 - $80 - $1.50 = $18.50 ($1,850). This is the maximum loss.
SPX below $5,230: Additional loss on the two short puts is offset by the lower long put. Max loss remains $18.50.
Why Traders Use BWBs
Asymmetric Risk
The position has zero risk to the upside (any rally is profitable) and defined risk to the downside. You're betting the stock stays above a level with a bonus max profit if it lands at the center.
Credit Entry
Unlike standard butterflies (which cost money), BWBs can be entered for a credit. This means you profit even in the worst case on one side (the stock rallies past your upper wing). You're being paid to take a directional position.
Capital Efficiency
The margin requirement for a BWB is the max loss ($1,850 in the example), not the notional value of the short puts. This makes it capital-efficient for directional bets on expensive indexes like SPX.
When to Deploy
Moderate directional conviction. You believe SPX will stay above 5,280 but aren't confident enough to buy calls outright.
High IV environments. The short options generate more premium, making it easier to achieve a credit entry and widening the profit zone.
As an alternative to credit spreads. The BWB has a higher max profit than a single credit spread with similar max loss, but requires more precise strike selection.
Management
Target profit: Close at 50% of max profit if the stock approaches the center strike. Don't hold to expiration hoping for the exact pin.
If tested (stock drops toward center): The position becomes profitable. Let it work unless the stock threatens the lower wing.
If the stock rallies immediately: You've captured the credit. Close early or let it expire for the small credit profit.
Time factor: BWBs benefit from time decay on the two short legs. The position improves daily if the stock stays near or above the center strike.
OptionsPilot's backtester tests BWB configurations across different strike widths and market conditions, helping you identify the asymmetry that generates the best risk-reward for your directional thesis.