Skip Strike Butterfly

It's called broken wing because one wing is 'broken' or extended further than the other. In a standard butterfly, both wings are equal. In the broken wing version, one wing spans more strikes (the skip), breaking the symmetry.

Not always. Credit entry depends on IV levels, strike selection, and skip ratio. Generally, put BWB (bullish) can often be entered for credit, while call BWB (bearish) may require a debit. Higher IV environments and wider skips increase credit potential.

This is maximum profit! At expiration, if price is exactly at the short strikes, you achieve max profit = (narrow wing width) + credit received. This is the ideal outcome.

An iron condor has symmetric wings on both sides and profits from price staying in a range. A skip strike butterfly has asymmetric wings and a directional bias. The skip strike can have no loss on one side (with credit entry), while iron condors can lose on either side.

Yes, especially if price moves toward the skip side. Daily monitoring allows you to exit before maximum loss is reached. Set alerts for when price approaches the lower long strike (for put BWB) or upper long strike (for call BWB).

Put BWB is bullish - use when you expect price to stay above a level. Call BWB is bearish - use when you expect price to stay below a level. Credit entry is typically easier with put BWB due to put skew. Choose based on your directional bias and where you see support/resistance.

Generally, closing is better than adjusting for skip strike butterflies. If price breaches or approaches the lower long strike (put BWB), the position is invalidated. Rolling or adjusting often compounds losses. The exception is if there's significant time remaining and you can roll to a new structure.

21-35 DTE is optimal. Under 14 DTE has excessive gamma risk. Over 45 DTE has slow theta decay and ties up capital longer. The sweet spot provides good theta with manageable gamma.

Wider skip = more credit but larger max loss. A 1:3 skip gives the most credit but the largest max loss if wrong. A 1:1.5 skip gives less credit but smaller max loss. Balance based on your risk tolerance and conviction level.

Not recommended. Earnings can cause large gaps that blow through the skip side, causing maximum loss. Skip strikes work best in stable environments with mean-reverting price action. Avoid events that can cause outsized moves.

Map IV across your candidate strikes. Look for: (1) Elevated IV at short strikes (sell expensive), (2) Depressed IV at long strikes (buy cheap), (3) Favorable term structure if considering calendar elements. The IV spread between short and long strikes directly affects credit received.

Key parameters: (1) Short strike placement relative to technical levels - placing at strong support significantly improves win rate, (2) IV rank filter - entering above 30% IV rank improves credit, (3) DTE selection - 21-28 DTE often optimal, (4) Skip ratio - 1:2 balances credit and risk. Backtest to optimize for your market.

Hedge tail risk with: (1) Far OTM puts for crash protection (especially for bullish put BWBs), (2) VIX calls that profit from vol spikes, (3) Diversify across underlyings and directions (mix bullish and bearish BWBs). Size hedges to cover portfolio max loss scenario, not individual position risk.

EV = P(above upper) × credit + P(profit zone) × avg_profit + P(loss zone) × avg_loss + P(below lower) × max_loss. Calculate probabilities from IV-implied distribution or Monte Carlo. Optimize strikes to maximize EV while respecting max loss constraints.

Charm accelerates delta changes near expiration. If price is in the profit zone, delta becomes very positive (good). If near skip side, delta becomes very negative (bad). This means position outcomes become more extreme near expiration - another reason to close before 7 DTE unless exactly at max profit.