Broken Wing Butterfly

Strategy Structure

Buy 1 near-strike Call + Sell 2 body Calls + Buy 1 far OTM Call. The far wing is wider than the near wing (broken), creating skew.

Profit & Loss Profile

Market Outlook

Neutral with a directional lean — expecting the underlying near the body, biased away from the risk side.

When to Use

• You want a defined-risk neutral trade with no risk on one side
• You can enter a butterfly for a credit by skewing the wings
• You have a mild directional bias to remove risk from that side
• Expiry-day plays where pinning near the body is likely

When to Avoid

• When you expect a large move toward the risk (wide-wing) side
• In very low IV where no credit is achievable
• Illiquid strikes where four legs create heavy slippage
• If you cannot manage the directional risk near expiry

Ideal Conditions

• You expect the underlying near the body strike with a directional lean
• You want a butterfly payoff entered for a credit
• Elevated IV that makes the body shorts richer
• A view that the move, if any, will be toward the no-risk side

Greeks Impact

Nifty Example

Adjustments & Risk Management

• Roll the wide wing further out to widen the no-risk zone
• Shift the entire structure if the underlying drifts away from the body
• Close at 50-70% of max profit to avoid expiry gamma
• Convert to a standard butterfly by tightening the wide wing if your view changes

Why Break the Wing

A standard butterfly has equal wings and is almost always entered for a debit. By widening one wing — say making the upper wing 300 points instead of 200 — you reduce the cost of the far long option, which can turn the whole structure into a credit or near-zero cost. The price of this is asymmetry: the wider side now carries the defined risk, while the narrow side is risk-free.

This makes the broken wing butterfly ideal when you have a mild directional lean. You place the wide (risk) wing in the direction you believe is least likely, so that even a wrong-but-small move on the safe side simply leaves you with the credit.

Trading Broken Wings on Nifty Expiry

On Nifty weekly expiry, broken wing butterflies are popular because pinning near round numbers and max-pain levels is common, and the credit-entry structure means you profit even if the pin does not happen exactly at the body. The defined, one-sided risk keeps the trade safe against a move in the favored direction.

The key risk is a sharp move into the wide wing. Size the position so the capped loss on that side is acceptable, and consider closing before the final hour to avoid expiry-day gamma whipsaw around the body strike.

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