Build the unequal wings leg by leg
Let K1 < K2 < K3, with lower width a = K2 - K1 and upper width b = K3 - K2. The call version below has a = 5 and b = 10. Its long 100/105 call spread is paired with a short 105/115 call spread. Moving the upper long call farther away makes that second spread wider. All premiums are hypothetical dollars per share, with a 100-share multiplier and one common expiry.
- D is signed: positive means a payment; negative means a receipt. A credit C corresponds to D = -C. The two premium columns are alternative assumptions, not simultaneous quotes.
- Three strike rows do not mean three contracts: the middle row contains two shorts. A 1:-1:1 order has a different payoff and does not satisfy these formulas.
- The term broken wing does not require a credit. Actual premiums, execution and wing orientation determine whether the package costs or receives money.
| Position | Credit-entry example | Alternative debit entry | Expiry value per share |
|---|
| Buy 1 call at 100 | Pay 6.00 | Pay 6.00 | max(S - 100, 0) |
| Sell 2 calls at 105 | Receive 2 × 4.00 | Receive 2 × 3.50 | -2 × max(S - 105, 0) |
| Buy 1 call at 115 | Pay 1.50 | Pay 1.50 | max(S - 115, 0) |
| Net debit D | 6 - 8 + 1.50 = -0.50 | 6 - 7 + 1.50 = +0.50 | Profit = total intrinsic value - D |
Derive each call payoff region before choosing a risk number
For the intact call package, expiry profit per share is max(S - K1, 0) - 2 × max(S - K2, 0) + max(S - K3, 0) - D. S is the common expiration settlement price. The slope changes only at a strike, so the tails and middle strike determine the extrema.
- For b > a, peak profit is a - D at S = K2. Maximum modeled loss is max(0, D, D + b - a). Multiply by the contract multiplier and number of complete packages.
- A debit entry with 0 < D < a has breakevens K1 + D and 2K2 - K1 - D. Check that each root falls in its stated price region rather than applying it to arbitrary premiums.
- A credit entry with 0 < C < b - a has one breakeven, 2K2 - K1 + C. The lower tail earns C; the upper tail loses b - a - C. A zero premium leaves a flat zero-profit lower tail before costs.
- These are expiry identities. Before expiry, the remaining time value, implied volatility and quotes on all legs determine the price of closing the package.
| Settlement region | Intrinsic-value sum | Profit after entry premium |
|---|
| S ≤ K1 | 0 | -D |
| K1 < S ≤ K2 | S - K1 | S - K1 - D |
| K2 < S < K3 | (S - K1) - 2(S - K2) = 2K2 - K1 - S | 2K2 - K1 - S - D |
| S ≥ K3 | (S - K1) - 2(S - K2) + S - K3 = a - b | a - b - D |
Recompute the $50 credit and the residual $450 loss
Use the credit-entry column with D = -0.50 and a 100-share multiplier. The three leg columns below exclude entry premiums; the last column adds the $50 credit. Costs, financing, dividends and any position changes are excluded. These are hypothetical settlement outcomes, not historical returns.
- The maximum profit is (5 + 0.50) × 100 = $550, attained at the middle strike. It is a narrow expiry outcome, not an expected return or a probability estimate.
- The upper tail retains -5 points of intrinsic value because the 10-point short spread exceeds the 5-point long spread. Adding the 0.50 credit leaves -4.50 points, or -$450.
- Assuming a fixed $4 total cost for the completed scenario reduces peak profit to $546 and the lower-tail gain to $46, and raises the upper-tail loss to $454. The breakeven becomes 110.46. Actual exercise, assignment or closing costs may differ.
| S at expiry | Long 100 call | Two short 105 calls | Long 115 call | Package profit |
|---|
| 90 | $0 | $0 | $0 | +$50 |
| 100 | $0 | $0 | $0 | +$50 |
| 105 | +$500 | $0 | $0 | +$550 |
| 110 | +$1,000 | -$1,000 | $0 | +$50 |
| 110.50 | +$1,050 | -$1,100 | $0 | $0 |
| 115 | +$1,500 | -$2,000 | $0 | -$450 |
| 120 | +$2,000 | -$3,000 | +$500 | -$450 |
Compare equal wings, a debit and a credit on the same scale
An equal-wing long call butterfly has zero combined intrinsic value on both tails. Unequal widths break that invariant. The comparison uses hypothetical premiums and excludes costs; it does not claim the wider structure is better or that all three packages are available at these prices.
- For the equal-wing row, illustrative call premiums of 6.00, 4.00 and 2.50 produce the $50 debit. For the two unequal rows, use the leg premiums in the first table.
- The debit rows have the same peak and breakevens but very different upper-tail losses. A chart cropped near the middle strike can hide that difference.
- Moving a wing changes both the payoff and its market price. Holding the entry premium fixed here isolates the payoff effect; a real comparison must reprice every changed contract.
| Call package | Entry | Lower-tail profit | Peak at 105 | Upper-tail profit | Breakeven prices |
|---|
| 100/105/110, widths 5 and 5 | Pay $50 | -$50 | +$450 | -$50 | 100.50 and 109.50 |
| 100/105/115, widths 5 and 10 | Pay $50 | -$50 | +$450 | -$550 | 100.50 and 109.50 |
| 100/105/115, widths 5 and 10 | Receive $50 | +$50 | +$550 | -$450 | 110.50 |
Put butterflies move the residual loss to the lower side
A put broken-wing example buys one 95 put, sells two 105 puts and buys one 110 put. Its lower wing is 10 points wide and its upper wing is 5. Hypothetical premiums of 1.50, 4.00 and 6.00 give D = 1.50 - 8 + 6 = -0.50. This mirrors the call example around 105; the risky tail is now below 95.
- For arbitrary put strikes K1 < K2 < K3, intrinsic value is max(K1 - S, 0) - 2 × max(K2 - S, 0) + max(K3 - S, 0). Below K1 it equals b - a; above K3 it equals zero. At K2 it equals b.
- For the usual put orientation a > b, peak profit is b - D and maximum modeled loss is max(0, D, D + a - b). With a 100 multiplier, this example peaks at $550 and loses at most $450 before costs.
- For credit 0 < C < a - b, the put breakeven is 2K2 - K3 - C, or 99.50 here. For debit 0 < D < b, the roots are 2K2 - K3 + D and K3 - D.
- All-put and all-call packages using the same unequal strikes do not have identical intrinsic-value sums: the put sum equals the call sum plus b - a. Recalculate premiums and tails instead of relabeling the option type.
| Put leg | Value at S = 90 | Value at S = 105 | Value at S = 120 |
|---|
| Long 95 put | +5 points | 0 | 0 |
| Two short 105 puts | -30 points | 0 | 0 |
| Long 110 put | +20 points | +5 points | 0 |
| Profit including 0.50 credit | -4.50 points | +5.50 points | +0.50 points |
Assignment can change the position before its modeled settlement
OIC states that short American-style options can be assigned before expiration, and individual contracts can be assigned separately. The long wings do not automatically neutralize that event. A bounded expiry diagram describes the complete spread; it is not a guarantee that an account will carry the intended spread through settlement.
- In the call example, assignment on both short 105 calls can deliver 200 shares while the long calls remain open. One assignment delivers 100. Buying back stock or exercising a long option has separate costs and consequences, including any remaining time value.
- In the put example, assignment on both short 105 puts can require buying 200 shares for $21,000. That cash obligation differs from the modeled $450 spread loss and can trigger account or margin constraints.
- Near the middle strike at expiration, exercise decisions can leave a stock position after other options expire. Check broker deadlines and contract settlement rules; do not infer final assignment solely from the closing chart.
- European-style options remove early exercise, but still require the correct settlement reference and contract multiplier. Adjusted deliverables, mixed expirations or an incomplete fill invalidate the simple package assumptions.
- Closing a wing, rolling only the shorts or changing quantities creates a new structure. Record realized cash flows and recalculate all remaining exposures; an extra credit alone does not prove that risk fell.
Model the structure in TradingView Options
TradingView documents custom options strategies with editable strikes, expirations, quantities and entry prices. Create a strategy or copy a call butterfly, then set the positions to buy one 100 call, sell two 105 calls and buy one 115 call. Verify one underlying and matching expiration and settlement series before inspecting the profile.
- Enter the hypothetical credit-case prices, then check 100, 105, 110.50 and 115 on the expiration profile. Confirm whether the chart shows points, contract cash values, payoff before premiums or profit after premiums.
- Copy the scenario and change the short-call entry premium from 4.00 to 3.50. The debit case should shift the entire expiry profit curve down by $100 per package while leaving its strike locations unchanged.
- Inspect the complete tail beyond 115, not just the profit tent near 105. Compare earlier dates separately because pre-expiry valuation also depends on volatility and time.
- The builder can use bid, ask, midpoint or theoretical prices. State which input you chose. A modeled profile does not establish simultaneous executable liquidity or supply a historical multi-leg backtest.
Check available inputs in Pineify and retain the leg record
AI Stocks & Options Picker provides an options-chain view by expiry and strike, with call and put bid/ask fields where the data source supplies them. Check that the required contracts are available. Use those inputs to review the TradingView scenario; an AI stock score does not establish a butterfly fill or its expected profit.
- For a conservative displayed-leg debit estimate, pay the ask on each long and subtract twice the bid on the shorts. Missing or stale quotes are reasons to stop the estimate, not replace a premium with zero. Package execution can differ from displayed individual legs.
- Keep a Trading Journal note with contract identifiers, 1:-2:1 quantities, expiration, multiplier, wing widths, quote timestamps, entry assumptions, costs, both tail losses and the planned exit conditions.
- Record actual fills, assignments and any changed legs separately from the initial model. Journal notes preserve the assumptions; they do not automatically reconcile a multi-leg options portfolio or execute the spread.
