Call Butterfly Strategy
Buy 1 low call, sell 2 middle calls, buy 1 high call. Profit if stock lands at middle strike.
What is a Call Butterfly?
A Call Butterfly involves three strikes: buy 1 lower-strike call, sell 2 middle-strike calls, buy 1 higher-strike call. Low cost, high reward if stock lands exactly at middle strike at expiration. Lottery-ticket style directional bet.
When to Use a Call Butterfly
Use when you have a specific price target. Best when you expect stock to settle at a specific level by expiration. Low cost entry with asymmetric payoff.
Key Formulas
- Max Profit
- (Middle - Lower strike - Net debit) × lot size
- Max Loss
- Net debit × lot size
- Breakeven
- Lower + net debit / Upper - net debit
Example Trades
Buy 1 AAPL $195 Call, Sell 2 $200 Calls, Buy 1 $205 Call for $1 debit. Max profit $400 at $200.
Buy 1 NIFTY 22300 Call, Sell 2 22500 Calls, Buy 1 22700 Call for ₹50 net debit. Max profit ₹9,750 (× 65) if NIFTY pins 22500.
Common Mistakes to Avoid
- Expecting exact pin at middle strike (rare)
- Holding too long (need pin at expiration)
- Choosing wings too wide
- Poor liquidity on middle strike
Related Strategies
Call Butterfly FAQ
What is a Call Butterfly?
A Call Butterfly involves three strikes: buy 1 lower-strike call, sell 2 middle-strike calls, buy 1 higher-strike call. Low cost, high reward if stock lands exactly at middle strike at expiration. Lottery-ticket style directional bet.
When should I use a Call Butterfly?
Use when you have a specific price target. Best when you expect stock to settle at a specific level by expiration. Low cost entry with asymmetric payoff.
What is the maximum profit and loss for a Call Butterfly?
Max profit: (Middle - Lower strike - Net debit) × lot size. Max loss: Net debit × lot size.
What is the breakeven price for a Call Butterfly?
Breakeven: Lower + net debit / Upper - net debit. US example: Buy 1 AAPL $195 Call, Sell 2 $200 Calls, Buy 1 $205 Call for $1 debit. Max profit $400 at $200. Indian-index example: Buy 1 NIFTY 22300 Call, Sell 2 22500 Calls, Buy 1 22700 Call for ₹50 net debit. Max profit ₹9,750 (× 65) if NIFTY pins 22500.
What are common mistakes when trading a Call Butterfly?
Common mistakes include: Expecting exact pin at middle strike (rare); Holding too long (need pin at expiration); Choosing wings too wide; Poor liquidity on middle strike.
Ready to Build a Call Butterfly?
Open the strategy builder to see live Greeks, P&L charts, and probability of profit for this strategy on any stock.
Launch Builder →