Butterfly Spread Optimizer

Three strikes, four contracts: Buy 1 at lower wing, Sell 2 at center, Buy 1 at upper wing. Maximum profit when price pins exactly at center at expiration. Maximum loss is the small debit paid. High reward-to-risk ratio (3:1 to 5:1+).

The net debit paid to enter. Typically 10-20% of wing width. This small, defined loss is why butterflies are considered low-risk despite lottery-like payoff.

Wing width minus debit. For 50-point wings with 10-point debit: Max profit = 40 points. Occurs when price exactly at center strike at expiration.

Between breakeven points: Center ± Debit. For center at 7,500, debit of 10: Profit zone is 7,490 to 7,510 (20 points wide). Narrow zone requiring precise pin prediction.

Same payoff either way (put-call parity). Use whichever is cheaper or more liquid. Often calls are more liquid. Check both prices before entering.

Credit version: Sell ATM straddle + Buy OTM strangle. Receives credit at entry. Max profit = credit received. Max loss = wing width - credit. Same payoff shape, different construction and risk profile.

Unequal wing distances. One wing further from center. Creates directional bias. May receive credit with zero risk on one side. Higher risk on the short wing side. Use when you have slight directional lean.

Gamma risk intensifies near expiration when price is near center. Small moves cause wild P&L swings. Unless confident in pin, take profits at 7 DTE to avoid the volatility of final days.

Higher IV = Cheaper butterflies (selling expensive center options). Butterflies have negative vega, so they benefit from IV decline. Enter when IV Rank > 30% for best pricing.

15-30%. Most butterflies lose (price doesn't pin). But wins are 3-5× the loss, so overall can be profitable. Treat as lottery portfolio - expect many small losses, few big wins.

Use vol surface analysis to find cheapest configuration. Compare call vs put at various centers. Look for technical levels (support/resistance) with options market edge. Expected move calculation helps set realistic centers.

Unequal quantities (e.g., 1:3:2). Higher max profit but creates undefined risk on one side. Advanced strategy. Use when have strong directional conviction but expect pin. Requires careful management.

1-2% per butterfly, 10-20% total. Lottery portfolio approach. Expect 70-85% to lose small (the debit). 15-30% win big (3-5× debit). One big win covers multiple losses. Diversify across underlyings and expirations.

Greater than 1.5. With 25% win rate and 4:1 win/loss ratio: (0.25 × 4) / (0.75 × 1) = 1.33. Need better parameters to exceed 1.5. Track and optimize continuously.

Put skew makes put butterfly lower wings expensive. Call butterflies may be cheaper. Analyze surface to determine which butterfly type offers best value. Enter where market price < theoretical value.