Broken Wing Butterfly

This is a strategy that I'm still learning about and have little experience using. I'll be updating this page as I learn more. Therefore, nothing on this page is set in stone, and it may not reflect the actual trades that I will be using in the moment.

A broken wing butterfly consists of selling 2 puts (or calls) and buying 1 above and one below at different distances. This creates a favorable risk profile with a credit on open, unlimited upside profit and a small trap on the downside that contains many times the upside profit as well.

I currently open these trades at 21/28/32 deltas at 21 DTE. (Buy 1 put at 21 and 32 delta and sell 2 at 28 delta.) This results in >10% max loss as opening credit and a ~75% chance of profit.

I don’t plan on holding these spreads until expiry as it decays very rapidly in the first 2 weeks and doesn’t have much premium remaining to receive after that point. I’ll be figuring out when and where the best exit is empirically as I keep trading this strategy.

This is a great spread to use during a downturn, especially if you’re expecting a reversal to occur.