What Is a Broken Wing Butterfly in Options? Strategy, Payoff, Risk and NIFTY Example

What Is a Broken Wing Butterfly?

A Broken Wing Butterfly (BWB) is a variation of a standard butterfly spread in which the two wings have unequal widths.

A common call structure is:

•Buy one lower-strike call

•Sell two middle-strike calls

•Buy one higher-strike call

The difference is that the distances between the strikes are not equal.

Regular Butterfly vs Broken Wing Butterfly

A regular butterfly might use:

•Buy 24,800 Call

•Sell 2 × 25,000 Calls

•Buy 25,200 Call

Both wings are 200 points.

A Broken Wing Butterfly might use:

•Buy 24,800 Call

•Sell 2 × 25,000 Calls

•Buy 25,300 Call

Now:

•Lower wing = 200 points

•Upper wing = 300 points

The payoff becomes asymmetric.

NIFTY Example

Suppose NIFTY is around 25,000.

Consider:

•Buy 24,800 Call

•Sell 2 × 25,000 Calls

•Buy 25,300 Call

The exact risk and reward depend on the option premiums at entry.

Why Make the Wings Unequal?

Changing one wing changes the payoff shape.

This allows the trader to create an asymmetric structure and introduce a directional bias through strike placement.

The wider wing determines where additional risk or protection exists.

Payoff at Expiry

The maximum-profit region is generally around the middle strike for a standard butterfly-style structure.

However, the exact profit depends on:

•Strike distances

•Net credit or debit

•Option premiums

The full expiry payoff should always be calculated before entry.

Broken Wing Butterfly vs Regular Butterfly

| Feature | Regular Butterfly | Broken Wing Butterfly |

|---|---|---|

| Strike spacing | Equal | Unequal |

| Payoff | Symmetrical | Asymmetrical |

| Risk profile | Defined according to structure | Asymmetric |

| Directional bias | Limited | Can be introduced |

Broken Wing Butterfly vs Iron Butterfly

An Iron Butterfly generally combines puts and calls around a central short strike.

A Broken Wing Butterfly can be constructed with calls or puts using unequal wing widths.

They therefore have different payoff structures.

Main Risks

Directional Risk

A large move can push the underlying into the less favourable wing.

Volatility Risk

Changes in implied volatility affect all legs.

Expiry Risk

Sensitivity can increase as expiry approaches.

Liquidity Risk

Four-leg execution can create additional bid-ask costs.

Strike-Selection Risk

Changing one strike can materially change the payoff.

Practical Checklist

Before considering a BWB:

1.Map all four legs.

2.Calculate both wing widths.

3.Calculate net credit or debit.

4.Calculate maximum profit.

5.Calculate maximum loss.

6.Identify breakevens.

7.Stress-test large NIFTY moves.

8.Check liquidity.

9.Check margin.

10.Define the exit plan.

Frequently Asked Questions

Is a Broken Wing Butterfly defined risk?

It can be structured with defined risk, but the exact risk depends on the strikes, option type and premium.

Is it bullish or bearish?

The structure can be given a directional bias depending on strike placement and which wing is wider.

Is it the same as a Butterfly Spread?

No. A regular butterfly has equal wing widths; a Broken Wing Butterfly has unequal widths.

Can it be used on NIFTY?

Yes, where suitable contracts and liquidity are available. Current contract specifications should always be checked.

Final Thoughts

A Broken Wing Butterfly is essentially a butterfly spread with deliberately unequal wings.

Its defining feature is asymmetry. Always calculate the complete payoff rather than relying only on the strategy name.

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Disclaimer: This article is for educational purposes only and does not constitute financial advice. Options involve substantial risk.