Broken-Wing Butterfly
Butterfly with unequal wings for directional bias
What is Broken-Wing Butterfly?
Broken-Wing Butterfly A butterfly spread with unequal wing widths, creating a directional bias. By widening one wing and narrowing the other, you can enter for a credit while maintaining a profit zone. Risk is eliminated on one side (the narrow wing) but increased on the other. Commonly used as a directional trade with a hedge.
Complete Definition
A butterfly spread with unequal wing widths, creating a directional bias. By widening one wing and narrowing the other, you can enter for a credit while maintaining a profit zone. Risk is eliminated on one side (the narrow wing) but increased on the other. Commonly used as a directional trade with a hedge.
Example
Buy 1 $145 put, sell 2 $150 puts, buy 1 $160 put. The wider upside wing creates a credit entry with no risk above $160 but larger risk below $145.
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