Butterfly Spread Calculator

The butterfly spread is an options strategy that combines bull and bear spreads with a fixed risk and limited profit potential. It's designed to profit from low volatility and when you expect the underlying asset to remain near a specific price target at expiration.

When to use this calculator:

  • When you expect the underlying asset to remain at or near a specific price at expiration
  • When you want to trade in a low-risk, defined-reward manner
  • During periods of low expected volatility or when implied volatility is high
  • When you want to create a position with limited risk and precisely defined profit potential

Butterfly Spread Calculator

Calculate butterfly spread metrics

Understanding Butterfly Spreads

Strategy Structure

A butterfly spread consists of three strike prices and four total options:

  • • Buy 1 option at a lower strike price
  • • Sell 2 options at the middle strike price
  • • Buy 1 option at a higher strike price

All options must be of the same type (calls or puts), with the same expiration date, and the strike prices should be equidistant.

Calculator Fields

  • Stock Price:

    The current market price of the underlying security.

  • Lower Strike:

    The strike price of the lowest strike option you're buying.

  • Middle Strike:

    The strike price of the middle options you're selling.

  • Upper Strike:

    The strike price of the highest strike option you're buying.

  • Premiums:

    The cost per share for each option contract at their respective strikes.

Results Explained

  • Max Profit:

    Maximum potential profit, which occurs when the stock price is exactly at the middle strike price at expiration.

  • Max Loss:

    Maximum potential loss, which is limited to the net premium paid for the spread.

  • Break-even Points:

    The stock prices at which the strategy will neither make nor lose money.

  • Max Profit Point:

    The exact stock price at which maximum profit is achieved (middle strike).

  • Profit Range:

    The range of stock prices between the break-even points where the strategy is profitable.

  • Total Cost:

    The net cost to establish the butterfly spread position.

Strategy Advantages

  • Limited risk (maximum loss is the net premium paid)
  • Potential for significant return on capital
  • Can be created with either all calls or all puts
  • Profits from low volatility or range-bound markets
  • Can benefit from time decay when positioned properly
  • Provides precise targeting of a specific price level

Important Notes

  • Butterfly spreads work best when you have a strong opinion about where the stock will be at expiration.
  • The strategy has a very narrow profit zone, so timing and price targeting are crucial.
  • Consider commissions and slippage which can significantly impact profitability of multi-leg strategies.
  • This calculator shows theoretical values at expiration and doesn't account for early assignment risk.