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Butterfly Spread Profit

Calculate profit from butterfly spread options strategy.

Butterfly Spread Analysis

Net Premium

Max Profit

At middle strike

Max Loss

At extremes

Break-even Points

Strategy Breakdown

Lower Strike ($): - $
Middle Strike ($): + $
Upper Strike ($): - $

Profit/Loss at Expiration

Profit
Loss
Break-even

Scenario Analysis

Best Case Scenario

Stock price at expiration: $
Profit per contract: $
Total profit ( contracts): $

Worst Case Scenario

Stock price at expiration: ≤$ or ≥$
Loss per contract: $
Total loss ( contracts): $

About Butterfly Spreads

Formula

Net Premium:

Credit/Debit = (2 × Middle Premium) - Lower Premium - Upper Premium

Max Profit:

(Middle Strike - Lower Strike) - Net Debit

Max Loss:

Net Debit (for long butterfly)

Break-even Points:

Lower: Lower Strike + Net Debit

Upper: Upper Strike - Net Debit

Key Points

  • • Limited profit and loss potential
  • • Profits when stock stays near middle strike
  • • Time decay benefits the position
  • • Low volatility is favorable

When to Use

  • • Expect minimal price movement
  • • High implied volatility environment
  • • Want limited risk exposure
  • • Seeking income from time decay

Risks

  • • Loss if stock moves significantly
  • • Multiple commissions
  • • Assignment risk on short options
  • • Limited profit potential

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