What is a butterfly spread, in plain words?
A long call butterfly is buying one call at a lower strike, selling two at a middle strike and buying one at a higher strike, equally spaced, with one expiry 1. The most it can lose is what it cost; it makes the most, the gap between strikes minus the cost, with the stock at the middle strike at expiry 1.
Calls at $45, $50 (two sold) and $55, all with 30 days left at 30% implied volatility on a $50 stock (made-up numbers). Move where the stock ends at expiry.
In numbers
By the formula the $45 call costs $5.36, each $50 call sells for $1.80 and the $55 call costs $0.33 2: $2.09 a share in all. At exactly $50 at expiry it makes $5 − $2.09 = $2.91; it breaks even at $47.09 and $52.91; at or beyond $45 or $55 the whole $2.09 is lost 1.
A narrow target
Its gain is largest with the stock at the middle strike, and the whole cost is lost outside the wings 1. With market orders, each of its four options is generally bought at or near the ask and sold at or near the bid 3.
What this shows, and what it doesn't
The result at expiry, a share, before fees. The calls sold can be exercised against you before expiry 4.
Go further
Sources (4), checked 20 October 2026 and 27 October 2026
- The Options Industry Council, “Long Call Butterfly”. Read it (read 27 October 2026)
- Fischer Black and Myron Scholes, “The Pricing of Options and Corporate Liabilities”, Journal of Political Economy 81(3), 637–654, 1973. Read it (read 20 October 2026)
- US Securities and Exchange Commission, Investor.gov, “Types of Orders”. Read it (read 20 October 2026)
- FINRA, “Trading Options: Understanding Assignment” (14 December 2020). Read it (read 27 October 2026)
Now try it on a scenario of your own
Pick where a simulated stock might be, and by when: drag one dot and see, side by side, what buying shares, one option, or a pair of options (a call or put spread) would each do. Free, no sign-up.
Check a trade before you make it →