What is a broken wing butterfly and why use asymmetric wings?

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AcadiFi · Accepted Answer

A broken wing butterfly has unequal distances between strikes, eliminating premium cost while introducing directional bias. Standard put butterfly at 95/100/105 costs debit; a broken wing at 90/100/105 turns it into a credit by widening the downside wing. Example: stock at $100, sell 1 put at 100 for $3.00, buy 1 put at 90 for $0.80, buy 1 put at 105 for $5.50, sell 1 put at 105 for $5.50—actually the cleaner construction is buy 1 at 90, sell 2 at 100, buy 1 at 105. Standard butterfly (95/100/105) debits; broken wing (90/100/105) can credit because the far-out 90 put is cheap. ```mermaid flowchart LR A[Buy 1 Put
90] --> D[Broken Wing] B[Sell 2 Puts
100] --> D C[Buy 1 Put
105] --> D D --> E[Credit + Upside
Tail Risk] ``` Broken wings remove the pin-risk cost of classic butterflies by accepting worse outcomes in one tail. The 10-point wide wing (100 to 90) versus 5-point wing (100 to 105) means max loss if pinned at 90 exceeds the standard structure. Traders use broken wings for directional bets with defined cost—the credit version is essentially free downside insurance if stock stays above 95, but catastrophic below 90. Position sizing is critical since tail loss can be 5-10x the credit received.

What is a broken wing butterfly and why use asymmetric wings?

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