Butterfly Spread Calculator

What Is a Butterfly Spread?

A long call butterfly spread involves buying one call at a lower strike (K1), selling two calls at a middle strike (K2), and buying one call at a higher strike (K3), all with the same expiration date. The strategy has a tent-shaped payoff that peaks at the middle strike.

In a standard butterfly the wing widths are equal (K2−K1 = K3−K2), but this calculator also supports broken-wing variations where the wing widths differ. The net debit is calculated as K1 Premium − 2 × K2 Premium + K3 Premium.

Key Characteristics

• Max Profit: (K2 − K1 − Net Debit) × 100 × Qty. Occurs when the stock equals exactly the middle strike at expiration.
• Max Loss: Net Debit × 100 × Qty. For equal-wing butterflies, this occurs when the stock is at or below K1, or at or above K3. For broken-wing butterflies, the loss on each side may differ.
• Lower Breakeven: K1 + Net Debit per share
• Upper Breakeven: 2K2 − K1 − Net Debit per share
• Outlook: Neutral — expecting the stock to stay near the middle strike
• Cost: Net debit (you pay the spread cost upfront)
• Time Decay: Works for you near K2 — the short options at K2 lose time value faster than the long wings

How to Read the P/L Chart

The solid blue line (At Expiration) shows the butterfly’s tent-shaped payoff. The peak occurs at the middle strike K2, where profit is maximized. Moving away from K2 in either direction, the P/L decreases linearly until reaching the wings, where it flattens out at the maximum loss.

The dashed dark blue line (Today / T+0) represents the theoretical P/L at trade entry, computed using Black-Scholes for all three strikes. The smooth curve shows how the position value changes with the stock price while time value remains in the options.

IV Mode vs. Premium Mode

IV Mode: Enter implied volatility, and the calculator uses Black-Scholes to estimate all three strike premiums. This mode also enables the “Today (T+0)” P/L curve on the chart, showing theoretical value before expiration.

Premium Mode: Enter the exact call premiums for K1, K2, and K3 that you paid (or expect to pay). Useful when you know the actual market prices. Only the expiration payoff curve is shown because IV is needed to compute theoretical values before expiration.

When to Use a Butterfly Spread

• When you expect the stock to stay range-bound near a specific price through expiration
• During periods of low expected volatility after an event has passed
• When you want to profit from time decay with defined, limited risk
• As a low-cost, high-reward alternative to selling naked options
• When you have a specific price target for the underlying stock