What is a butterfly spread?
Updated 6 June 2026 · by Theo Chen
A butterfly spread is a low-cost, defined-risk options trade that pays off most if the stock pins a target price at expiration. You buy one option below, sell two at the target (the "body"), and buy one above — all calls or all puts. The small net debit you pay is the most you can lose.
Want the exact max profit, max loss and both breakevens for your strikes? Enter the three strikes and the net debit and the calculator returns the full payoff, plus a diagram of the tent shape.
Open the Butterfly Spread Calculator →How is a butterfly built?
A (long) butterfly combines three equally spaced strikes into four contracts:
- Buy 1 option at the lower strike (a wing).
- Sell 2 options at the middle, or body, strike.
- Buy 1 option at the upper strike (the other wing).
The two options you sell at the body fund most of the two wings you buy, so the position opens for a small net debit. The wings are usually equal distances from the body (a balanced butterfly), which is why the payoff diagram is a symmetric tent peaking at the body strike.
Max profit, max loss and breakevens
- Max profit = (wing width − net debit) × 100, reached only if the stock pins the body strike at expiration.
- Max loss = the net debit × 100, lost whenever the stock finishes outside either wing.
- Lower breakeven = lower strike + net debit.
- Upper breakeven = upper strike − net debit.
Between the two breakevens you make money; the peak sits at the body. Because that profitable band is narrow, the chance of capturing the full payoff is low — the appeal is the lopsided reward-to-risk, not a high win rate.
A worked example
With the stock near $100, you build the 95 / 100 / 105 call butterfly: buy the $95 call, sell two $100 calls, buy the $105 call, for a net debit of $1.50. Your wings are $5 wide. If the stock finishes exactly at $100, max profit is (5 − 1.50) × 100 = $350. If it finishes below $95 or above $105, you lose the whole $150 debit. Your breakevens are $96.50 and $103.50 — the stock has to land in that band for the trade to make money.
Buy the $95 call, sell two $100 calls, buy the $105 call for a $150 net debit. Max profit $350 right at $100; the most you can lose is the $150 debit beyond the wings; breakevens $96.50 and $103.50.
When a butterfly makes sense
A butterfly suits a strong view that a stock will sit near a specific price into expiration — a quiet, range-bound stretch — where you want a cheap position with an outsized payoff if you are right. If you want a wider, more forgiving profit zone and are willing to take in a credit instead, an iron condor trades the pinpoint peak for a broad flat range.
The bottom line
A butterfly spread is a cheap, defined-risk bet that a stock pins one exact strike at expiration - the reward-to-risk is lopsided in your favour, but the profit zone is narrow so the odds of hitting the peak are low.
Frequently asked questions
What is a butterfly spread?
A butterfly spread is a three-strike, four-contract options position that profits most when the stock finishes right at a chosen middle (body) strike at expiration. You buy one option at a lower strike, sell two at the body strike, and buy one at an upper strike — all calls, or all puts. It costs a small net debit, and that debit is the most you can lose.
What is the maximum profit and loss on a butterfly?
Maximum profit is the wing width minus the net debit, times 100, and it is reached only if the stock pins the body strike exactly at expiration: (wing − debit) × 100. Maximum loss is just the net debit you paid, times 100, lost whenever the stock finishes outside either wing. Both are capped and known up front — the hallmark of a defined-risk trade.
When should you use a butterfly spread?
A butterfly is a low-cost, high-reward bet that a stock will sit near a specific price at expiration — useful when you expect a quiet, range-bound stretch and want a cheap position with a large payoff if you are right. Because the profit zone is narrow, the odds of hitting the maximum are low; traders use it for the favourable risk-to-reward, not a high win rate.
What is the difference between a butterfly and an iron condor?
Both are defined-risk, neutral strategies, but they trade differently. A long butterfly is a debit trade with a single pinpoint profit peak at the body strike. An iron condor is a credit trade with a wide flat profit zone between two short strikes. The butterfly pays more if the stock lands exactly on target; the condor wins across a broader range but pays less.
Why is a butterfly spread so cheap?
Because the two options you sell at the body strike pay for most of the two you buy at the wings, the net cost is small — often a fraction of the wing width. That low cost is what gives the butterfly its large reward-to-risk ratio. The trade-off is that you only collect the full payoff in the narrow zone right around the body strike.
Related questions
- What is an iron butterfly, and how is it different?
- How does an iron condor give a wider profit zone?
- What is a straddle for betting on a big move?
- How do I choose the body strike to target?
Related tools and guides
Run your strikes through the Butterfly Spread Calculator, or compare the credit-based cousins with the Iron Butterfly Calculator and the Iron Condor Calculator. Map the tent shape in the Payoff Diagram Builder.
Educational explainer only — not financial advice. Examples are illustrative and exclude commissions, early assignment and dividends. Confirm the mechanics and size positions to your own risk tolerance.