Strategy reference
Long Call Butterfly
A long call butterfly is a four-leg position (across three strikes) that earns its maximum profit only if the stock pins at the middle strike. Cheap to enter; small loss if the stock moves away.
Structure
Buy one call at a lower strike, sell two calls at a middle strike, and buy one call at a higher strike, all expiring on the same date. The middle strike is typically halfway between the other two. Three distinct strikes across four contracts. You pay a net debit up front.
Payoff at expiration
At expiration, you make your maximum profit — the gap between the lower and middle strikes minus what you paid — only if the stock finishes exactly at the middle strike. Your worst case is losing the full amount you paid, which happens if the stock finishes outside the outer strikes (at or below the lower strike, or at or above the higher strike). Two breakevens: the lower strike plus your cost, and the higher strike minus your cost.
- Stock price
- $100
- Buy
- 1 × $95 call @ $6.50
- Sell
- 2 × $100 call @ $3.50 each
- Buy
- 1 × $105 call @ $1.50
- Net cost (debit)
- $1.00
- Max gain
- $4.00 at S = $100
- Max loss
- $1.00 at S ≤ $95 or S ≥ $105
- Breakevens
- $96.00 and $104.00
Frequently asked questions
What is a long call butterfly?
A long call butterfly is a four-leg, three-strike debit position: buy one call at a lower strike, sell two calls at a middle strike, and buy one call at a higher strike — all expiring on the same date.
What is the maximum profit on a long call butterfly?
The maximum profit equals the width between the lower and middle strikes minus the net debit paid. It occurs only if the stock finishes exactly at the middle strike.
What is the maximum loss on a long call butterfly?
The maximum loss equals the net debit paid. It occurs if the stock finishes outside the outer strikes at expiration.
This page is an educational reference, not investment advice. Numbers in the worked example are approximations for illustration only — real option prices depend on volatility, interest rates, dividends, and time to expiration. See the full disclaimer for details.