Butterfly Spread: Precise Profit Targeting 2026

What Is a Butterfly Spread?

A butterfly spread uses three strike prices to create a position that profits most when the stock expires at the middle (short) strike. The classic long call butterfly involves: buying 1 lower-strike call (ITM), selling 2 middle-strike calls (ATM), and buying 1 higher-strike call (OTM). The strikes are equally spaced.

The two short calls at the center are the "body" of the butterfly, and the two long calls at the outer strikes are the "wings." The position costs a small net debit and has a symmetrical payoff profile that peaks at the center strike.

Butterflies are extraordinarily capital-efficient. Because you're both buying and selling, the net cost is low, and your maximum risk is limited to the premium paid. The tradeoff is that your profit zone is narrow — you need the stock to land near your target.

Example: Stock XYZ is trading at $100. You set up a butterfly: buy 1 $95 call for $7.00, sell 2 $100 calls for $4.00 each ($8.00 total), buy 1 $105 call for $2.00. Net debit: $7 + $2 - $8 = $1.00 ($100 total). If XYZ closes at $100 at expiration, your profit is $5 - $1 debit = $4.00 ($400). If XYZ is below $95 or above $105, you lose the $1.00 debit ($100).

When to Use It

• When you have a specific price target for a stock at a given expiration
• After an earnings move has happened and you expect the stock to consolidate
• When implied volatility is high (you're selling expensive ATM options)
• When you want a low-cost, defined-risk way to express a neutral view
• On index options like SPX near expiration for precise targeting

How to Set It Up

1. Choose your target price for the stock at expiration — this becomes the middle strike 2. Buy 1 call at the lower strike (target minus the wing width) 3. Sell 2 calls at the middle strike (your target price) 4. Buy 1 call at the upper strike (target plus the wing width) 5. Common wing widths: $5 for stocks under $100, $10 for stocks $100-$500 6. Net debit is your maximum risk 7. Close at 50-75% of max profit — don't hold to expiration hoping for the exact pin

Risk & Reward

Max profit: Wing width - net debit paid. In the example: $5 - $1 = $4.00 per share ($400) | Max loss: Net debit paid. In the example: $1.00 per share ($100) | Breakeven: Lower strike + debit on the downside; Upper strike - debit on the upside. In the example: $96 and $104.

Best Brokers for This Strategy

Tastytrade is excellent for butterflies — its visual trade builder makes the 3-leg setup easy, and free-to-close pricing means you can take profits without paying to exit. IBKR has the best fills on butterfly orders thanks to smart routing. thinkorswim/Schwab offers the best probability analysis for selecting your center strike. See our best options brokers guide.

Not financial advice. Always do your own research.