Butterfly Spread with Calls Option Strategy

A long butterfly spread with calls is an advanced options strategy that consists of three legs and four total options. The trade involves buying one call at strike price A, selling two calls and strike price B and then buying one call at strike price C. The set up is what would happen if an investor combines the end of a long call spread and the start of a short call spread, joining them at strike price B.

butterfly spread with calls

A trader who opens this trade is betting that the stock will pin or come close to pinning at strike price B. If the stock does pin at the short strikes then the investor would bank the profits from option A, while options B and C expire worthless.

This strategy has a low entry cost, which means reduced risk if things take a turn for the worse, but it can be challenging to lock down that pinning strike. The long butterfly spread is good to use in low volatile markets, where the price has a high probability of pinning. However, it can also be a good choice in unpredictable markets due to its limited loss, but traders should keep a close eye on the trade and close it out once the stock moves to the short strikes.


The maximum profit is calculated by taking the difference between the lowest strike price and the middle strike price, then subtracting the cost of the trade. For example, if the distance between point A and B was $5 and the trade cost $0.70, then the max profit would be $4.30.

The maximum loss would the cost of the trade, so with the same example, the maximum loss would be $0.70.


There are two breakeven points. The lower breakeven point would be calculated by taking the lower strike price (point A) and adding the cost of the trade. So, if point A was a 100-strike price option, and the trade cost $0.70, the lower breakeven would be $100.70.

The upper breakeven point would be calculated by taking the highest strike price (point C) and subtracting the net debit. So, if the point C strike price was equal to $110 and the cost of the trade was $0.70, then our upper breakeven would be $109.30.


If XYZ is trading $103 and is expected to trade flat to slightly higher over the next 45 days, a trader could execute a 100/105/110 butterfly spread by buying one 100-strike price call, selling two 105-strike price calls, and buying one 110-strike price calls for the following prices:

  • Buy 1 XYZ 100-strike price call for $5.00
  • Sell 2 XYZ 105-strike price calls for $5.40 ($2.70 each)
  • Buy 1 XYZ 110-strike price call for $1.10
  • Total cost = $0.70 debit

If the stock trades down over the next 45 days, the investor will have lost his full $0.70, and all positions would expire worthless and be removed from the account.

If the stock trades up slightly to $105 at expiration, then the trader will gain $5 on the stock movement, capitalizing on the 100-strike price option, while the rest of the options expire worthless. Because they paid $0.70 for the trade, their net profit would be $4.30.

If the stock traded up to $110, the investor would make $10 on the 100 call. Lose $5 X2 on the short middle 105-calls for a total of $10, while the 110 call expired worthless. The net result would be $10 – $10, which mean all the profits are a wash, but because the investor paid $0.70 for the trade, their net loss is $0.70.


The higher a trader sets the strike prices, the more bullish a butterfly spread with calls becomes, while at the same time, reducing the cost of the trade. However, the higher the strike prices are set, the lower the probability of success.

This type of spread is sensitive to changes in implied volatility. The net price of the spread drops when implied volatility rises and the price increases when implied volatility falls, meaning it has an inverse relationship to implied volatility changes. The trader who executes this trade wants a drop to implied volatility.

The long butterfly spread with calls is not a strategy for a beginner, it’s recommended for experienced options traders.

Chris Douthit
Chris Douthit

Chris Douthit, MBA, CSPO, is a former professional trader for Goldman Sachs and the founder of OptionStrategiesInsider.com. His work, market predictions, and options strategies approach has been featured on NASDAQ, Seeking Alpha, Marketplace, and Hackernoon.