Broken Wing Butterfly

The wide wing side has more distance between strikes, meaning there's more room for loss to accumulate. If price moves to that side, you can lose the full width of the wide wing minus any protection from the narrow wing and credit. The narrow wing side has less exposure.

Not always. Credit depends on IV levels, skew, and strike selection. In low IV environments, you may need to enter for a small debit. The key is to aim for credit by adjusting wing widths appropriately, but don't force a poor structure just for credit.

This is the maximum profit scenario. Both short options at the middle strike are exactly ATM (may need to be managed for pin risk), and your long wings have declined significantly in value. The difference (plus any credit) is your profit.

Similar complexity, but with different focus. Regular butterflies have symmetric risk; BWBs require monitoring the wide wing side specifically. The advantage is that the narrow wing side often requires no attention (no risk). Focus your management on the wide wing side.

Use puts for bullish view (put BWB with wide wing below). Use calls for bearish view (call BWB with wide wing above). The wide wing always goes in the direction you DON'T want price to move. Choose based on your directional outlook.

Compare credit received to narrow wing width. If credit ≥ narrow wing width, you have no risk on that side. Example: Narrow wing is 25 points, credit is 30 points. If price goes beyond narrow wing, you keep the 30 points credit, which covers the 25 point wing and gives you 5 points extra profit.

Roll when: 1) Price is moving toward wide wing and you still have 21+ DTE, 2) You want to maintain the position but at different strikes, 3) You can roll for credit or minimal debit. Don't roll if: Close to expiration, already at significant loss, or thesis is broken.

Yes. Options include: 1) Close narrow wing to convert to vertical spread, 2) Roll entire position to new strikes, 3) Add protection beyond wide wing to cap loss, 4) Simply close for defined loss. The best choice depends on remaining DTE and market view.

BWBs can have better risk/reward because you can be paid (credit) to enter while maintaining butterfly-like max profit. However, this comes with asymmetric risk - you're trading symmetric risk for potentially getting paid on one side while accepting more risk on the other.

Higher IV increases all option premiums, making it easier to achieve credit entry. Lower IV makes credit harder to achieve. Additionally, skew affects put vs call BWBs differently. Put skew (higher IV on OTM puts) makes put BWBs harder to structure for credit; call BWBs may be easier.

Optimize by: 1) Narrow the narrow wing (reduces cost of that protection), 2) Widen the wide wing (more premium from shorts, but more risk), 3) Move middle strike closer to current price (higher premium but less room), 4) Use higher IV environment. Balance these factors against your risk tolerance and probability assessment.

Use double broken wing (put BWB + call BWB) when expecting range-bound but with slight directional bias. It creates a wider profit zone than single BWB. Structure: Put BWB with wide wing below + Call BWB with wide wing above. Complex to manage but offers more flexibility.

Key difference is delta. Standard butterfly has near-zero delta (neutral). BWB has non-zero delta matching its directional bias. Put BWB has positive delta (bullish); Call BWB has negative delta (bearish). Gamma, theta, and vega are similar but slightly asymmetric due to unequal wings.

Two approaches: 1) Pre-earnings: Enter BWB with directional view, benefit from elevated IV for credit. Risk: Gap against you on wide wing. 2) Post-earnings: Enter immediately after move when IV is still high but falling. Safer but less premium. Always size conservatively for binary events.

BWB gamma risk is concentrated at the short strikes. Near expiration: 1) Close by 21 DTE if not at target, 2) If at max profit zone at 14 DTE, decide whether to hold (high risk) or close (lock in profit), 3) Never hold into final week unless willing to manage pin risk and rapid P&L swings.