Butterflies offer a big potential payoff for a small, defined risk, but they only pay fully if the price lands near your middle strike. That makes them very sensitive to timing and exits, which is exactly what a journal is good at showing.
The common types
- Long butterfly (calls or puts): buy one lower strike, sell two middle strikes, and buy one higher strike, with equal distance between them. You pay a debit.
- Iron butterfly: sell an at-the-money put and call, and buy a put and call farther out. You collect a credit.
- Broken-wing butterfly: one wing is wider than the other, which shifts the risk to one side and can lower the cost or even turn it into a credit.
The basic math
For a long butterfly with equal wings:
- Max loss = debit paid × 100
- Max profit = (wing width − debit) × 100
- Breakevens: lower strike + debit, and upper strike − debit
Example: buy the 5790 call, sell two 5800 calls, and buy the 5810 call for a $2.00 debit. The wings are 10 points wide, so the max loss is $200, the max profit is (10 − 2) × 100 = $800 if SPX finishes right at 5800, and the breakevens are 5792 and 5808.
For an iron butterfly, it flips: max profit is the credit, and max loss is the wing width minus the credit.
What to record
- All three strikes (four legs for an iron butterfly) and the expiration
- The debit or credit, and the width of each wing
- Where the underlying was relative to your middle strike at entry
- Entry time, and how long you held it
- Exit price and what triggered the exit: profit target, time, or stop
What to review
- How often you capture a real profit. Full max profit is rare. Track your average win as a percentage of max profit.
- Entry timing. Short-dated butterflies often behave very differently in the morning and in the last hours of the day.
- Distance from the money. Compare results when your middle strike was at the money versus a little away from it.
- Broken-wing results by side. Check whether trades skewed to one side do better or worse.
Quillstrike recognizes butterflies, iron butterflies, and broken-wing butterflies automatically from your broker CSV, and shows how each one performs by entry time, hold time, and exit style.
Put your trades on the record
Import your broker CSV and see every multi-leg trade grouped, your patterns, and your key findings. Free during the beta.
Start freeThis guide is for education only and isn’t investment advice. Options involve significant risk and aren’t suitable for every investor. Examples are hypothetical.