So why do a broken wing butterfly instead of a credit spread? A skip strike butterfly with calls is more of a directional strategy than a standard butterfly. Broken Wing Butterfly [BWB] A long BWB spread can be thought of as the purchase of a smaller distance between closer to ATM strikes call/put spread and the simultaneous sale of a further OTM larger distance between strikes call/put spread. A Broken Wing Butterfly is a long butterfly spread with long strikes that are not equidistant from the short strike. The spread is $1 wide so at $2, we are once again at the maximum loss of $10 : $90 - $100x(0.01x100). 3. The Call Broken Wing Butterfly Spread, also known as the Broken Wing Call Butterfly Spread or Skip Strike Butterfly Spread, is a variant of the Butterfly Spread options trading strategy. If price trades back lower, it may make sense to cover the short vertical. ... 8 options in a spread is a little excessive for what you want to accomplish. #2 Sep 20, 2009. jones247. Breaking the wing can turn the trade from a debit spread to a credit spread. Notice that the break even occurs at $2.10. There is an interesting aspect of the broken wing butterfly. The embedded short call spread makes it possible to establish this strategy for a net credit or a relatively small net debit. If we’re more bullish we can also choose to add a narrower fly for a small credit. BWBs should always be traded for a credit. Let’s say that on October 3, with Netflix at 113.25, you had set up the following vertical put spread. It is possible to convert into a regular butterfly if I buy the $2.5 put and sell my $2 put. Here’s an example. Broken Wing Butterfly (BWB) The BWB is positioned slightly away from the money with unbalanced wings. I understand that many professional option traders prefer the Broken Wing Butterfly (BWB) over the standard butterfly. With a credit spread, your adjustment options are limited. This leads to one side having greater risk than the other, which makes the trade slightly more directional than a standard long butterfly spread. The video will talk you through how these strategies are typically done for a net credit with the goal of having no risk to the downside should the stock keep falling. 752 Posts; 3 Likes; What other way can I put on a spread that is a slight credit. It demonstrates how to create the broken wing by taking a traditional butterfly spread above the market and skipping one strike to create an unbalanced spread. If the stock moves heavily against you, you can still adjust the trade to make money on it. Since Butterflies are made up of two vertical spreads, that doesn't come as a surprise. But the difference is a BWB has a “broken” wing. It's pretty much like a credit spread. For example, a traditional butterfly has equal width wings (e.g., 95-100-105 strikes), while a BWB has unequal width wings (e.g., 95-100-107 strikes). The trade is usually initiated for a credit and has trading characteristics similar to an out of the money vertical spread. Share. In a call broken wing butterfly, the maximum loss is limited, it is the difference between the width of the wider and narrower call spreads minus the credit received when the trade was initiated. You can imagine it as a broken, unbalanced, or lopsided wing. However, due to the addition of the short call spread, there is more risk than with a traditional butterfly. Sell a vertical spread somewhere in the body of the butterfly – Selling a vertical spread inside the body of the butterfly lifts the upper wing and reduces the maximum loss. Sometimes you can turn a simple vertical spread into a butterfly spread. Because it is easier to adjust. 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