Why a Broken-Wing Call Butterfly Has Unequal Tail Outcomes

Why a Broken-Wing Call Butterfly Has Unequal Tail Outcomes

By Options Matrix Pro Editorial Team | Prepared 18 October 2026

A fictional four-call position brings in $50 when it opens. If the stock finishes below every strike, the expiration calculation keeps that $50 before costs. If it finishes above every strike, the same calculation loses $450. There is a long call on each side of the two short calls, but the wings are different widths.

The narrower long call spread can pay $500 at expiration. The wider short call spread can owe $1,000. Above all the strikes, the difference is a $500 obligation, partly offset by the $50 opening credit. Counting two bought calls and two sold calls does not reveal that difference; measuring the distances between their strikes does.

The quantities match, but the widths do not

A standard long call butterfly combines one lower-strike long call, two middle-strike short calls and one upper-strike long call, with equal wing widths and a common expiration. The Options Industry Council's butterfly guide makes that equal-spacing condition explicit. The OMP standard-butterfly example keeps both widths equal.

Fidelity's long skip-strike call-butterfly guide, credited to the CBOE Options Institute, describes an unequal-wing version that can open for a credit. It also uses the name broken-wing butterfly. Here, the upper long call is farther from the middle strike than the lower long call is. This particular arrangement leaves the larger loss on the rising-stock side. The name alone does not identify the risky side of every unequal-wing construction.

Assume fictional Company H shares are $100. One complete set has a common expiration 30 calendar days away and these stipulated opening fills, all in USD:

Lower call record: buy one $90 call for $12 per share, paying $1,200.

Middle call record: sell two $95 calls for $7.25 per share each, receiving $1,450 in total.

Upper call record: buy one $105 call for $2 per share, paying $200.

The net opening credit is $1,450 minus $1,200 minus $200, or $50. The lower wing is $95 minus $90, or $5 wide. The upper wing is $105 minus $95, or $10 wide. A $100 strike is skipped; no contract at that strike belongs to this position. There are four contracts across three option series.

Assume standard, unadjusted, American-style equity options, each covering 100 shares. OCC's equity-option specifications establish those ordinary terms; corporate actions can change the deliverable. Every company label, price, fill and interval here is invented. The premiums are teaching assumptions, not live quotes or values fitted to a pricing model.

Reconcile the calls at expiration

For this arithmetic, hold all four contracts intact to one expiration and value every leg at the same stock price. Include the $50 opening credit once. Ignore costs and exclude early exercise, assignment timing and any later share exposure from the payoff calculation.

Gross expiration profit or loss equals 100 times the following per-share expression:

max(S - 90, 0) - 2 x max(S - 95, 0) + max(S - 105, 0) + 0.50

Here, S is the stock price at expiration. The negative term is the signed intrinsic obligation on two short calls, not a negative quoted option price. These are economic payoff values for physically delivered contracts, not promised cash-settlement transfers.

Record A, stock at $80: the lower long call contributes $0, the two short calls $0, and the upper long call $0. Combined signed intrinsic value is $0. Adding the $50 credit gives a $50 gross profit. The result is also $50 at every stock price at or below $90, including zero.

Record B, stock at $95: the lower long call contributes $500, the two short calls $0, and the upper long call $0. Combined intrinsic value is $500. With the $50 credit, gross profit is $550, the peak for this intact expiration calculation.

Record C, stock at $100: the lower long call contributes $1,000, the two short calls subtract $1,000, and the upper long call contributes $0. Combined intrinsic value is $0. With the credit, gross profit is $50.

Record D, stock at $100.50: the lower long call contributes $1,050, the two short calls subtract $1,100, and the upper long call contributes $0. The combined obligation is $50. The opening credit offsets it, leaving zero gross profit or loss. This is the sole expiration breakeven before costs.

Record E, stock at $105: the lower long call contributes $1,500, the two short calls subtract $2,000, and the upper long call contributes $0. Combined signed intrinsic value is minus $500. Adding the credit leaves a $450 gross loss.

Record F, stock at $120: the lower long call contributes $3,000, the two short calls subtract $5,000, and the upper long call contributes $1,500. The combined obligation remains $500. After the credit, the gross loss remains $450.

Above $105, the upper call stops the loss growing in this intact payoff. It does not erase the $500 difference accumulated between the unequal wings. The lower tail earns $50 while the upper tail loses $450. Between $90 and $95, profit rises toward the $550 peak; between $95 and $105, it falls through the $100.50 breakeven.

Separate the two vertical spreads

Pair the $90 long call with one $95 short call. That $5-wide bull call spread costs $12 minus $7.25, or $4.75 per share: $475 for the pair.

The remaining $95 short call and $105 long call form a $10-wide bear call spread. It receives $7.25 minus $2, or $5.25 per share: $525. The $525 credit minus the $475 debit reproduces the whole position's $50 credit. The vertical-spreads lesson explains these component structures.

At or above $105, the bull spread's $500 payoff less its $475 cost earns $25. The bear spread's $525 credit less its $1,000 obligation loses $475. Together they lose $450. Below $90, the bull spread loses its $475 debit and the bear spread retains its $525 credit, leaving $50.

For these strikes, the upper-tail loss is the wider width minus the narrower width minus the credit: ($10 minus $5 minus $0.50) times 100, or $450. The shortcut depends on this construction, a common expiration and the stated net credit. It is not the standard equal-wing butterfly's debit-loss formula.

The $450 figure is not a broker margin quotation. Approval, collateral treatment, account equity and possible stock positions require separate confirmation. A net credit also does not establish cash that can be withdrawn or spent. Do not calculate a return on capital using the $50 received as though it were the capital committed.

A flat payoff can still leave shares in the account

An assigned short equity call requires share delivery. FINRA's assignment guidance explains that owning a protective option does not discharge that obligation automatically; the investor may need to exercise it or take other action.

Consider the $100 expiration record under an additional, explicitly conditional processing assumption: the $90 long call exercises, both $95 short calls are assigned, and the $105 call expires without exercise. The account buys 100 shares for $9,000 and sells 200 shares for $19,000. Starting with no shares, it ends short 100 shares. That residual position has a $10,000 market liability at the assumed $100 price. Including it reconciles the $10,000 net stock cash receipt and $50 option credit to the record's $50 gross economic gain.

That $10,000 stock cash receipt is not a $10,000 profit. Nor is the remaining short stock protected by an upper call that has expired. Subsequent price rises, borrow charges or other account costs can produce losses beyond the original $450 intact-expiration figure. This processing example assumes no guaranteed borrow, account permission or ability to keep the short shares.

Assignment can also arrive before expiration and affect only some short contracts. Near a strike, exercise decisions and after-hours moves can change which positions remain. OCC specifies American-style exercise and ordinary T+1 stock delivery; the broker's deadlines, funding, exercise and liquidation procedures still need checking. The exercise-versus-assignment lesson explains the separate holder and writer decisions.

Price the exit and the account requirements separately

The expiration formula supplies neither a closing price today nor an available fill. With time remaining, each option has its own market price. OIC's execution guidance describes spread and slippage risk and possible limit-order nonexecution. The OMP liquidity lesson gives the corresponding quote checks.

All examples exclude bid-ask costs, commissions, exchange and broker fees, exercise and assignment charges, taxes, interest, dividends, stock borrow, delivery failures and changes to contract terms. Costs can erase the small lower-tail gain. Tax treatment depends on the investor and transactions; no tax result is assumed. The OCC disclosure gateway links the options disclosure document. Its June 2024 edition available when checked discusses cost, tax, margin and holder/writer risks.

This advanced structure may be unsuitable if the account cannot absorb its adverse-side loss, manage a difficult exit or fund the resulting share obligations. Concentration in one company remains relevant, and a fixed spending deadline cannot rely on the stock reaching the peak on the correct date. The small credit settles none of those questions.

Sources were checked on 18 October 2026, Australia/Brisbane. This is general education, not personal financial, investment, legal or tax advice, and recommends no transaction. Options involve risk and are not suitable for all investors. Options Matrix Pro has a commercial interest in its analysis platform; its internal links are first-party educational resources. Our editorial policy explains the publishing standards.

For an unequal-wing position, record each wing width, each tail's complete profit or loss, the expiration breakeven and the shares that could remain. Obtain the broker's actual collateral and exercise requirements before treating the opening credit as evidence of a funded plan.