Butterfly Spread Profit Calculator
Calculate the profit or loss at expiration for a standard 1-2-1 ratio Call or Put Butterfly Spread. This tool uses the strike prices and premiums you entered to determine the initial cost and the payoff at a specific final stock price.
Enter the details for your Butterfly Spread (buy 1 low strike, sell 2 middle strike, buy 1 high strike) and the potential final stock price at expiration.
Enter Butterfly Spread Details
Understanding the Butterfly Spread Strategy
What is a Butterfly Spread?
A butterfly spread is a neutral options strategy combining four options contracts with the same expiration date but three different strike prices. It's typically constructed using either all calls or all puts. The most common form is the 1-2-1 ratio:
- Buy 1 option at a lower strike price (Out-of-the-Money Put or In-the-Money Call)
- Sell 2 options at a middle strike price (Near-the-Money)
- Buy 1 option at a higher strike price (In-the-Money Put or Out-of-the-Money Call)
The strikes are usually equidistant, like 95, 100, 105.
How it Works (Payoff at Expiration)
The strategy is designed to profit when the underlying asset's price stays close to the middle strike price at expiration. It has limited risk and limited profit potential. The payoff at expiration is the sum of the intrinsic values of the four contracts (remembering you are short two middle strikes).
The Net Profit or Loss is calculated as: Payoff at Expiration - Initial Cost (Total Premium Paid - Total Premium Received).
Initial Cost (Debit or Credit)
The cost to open the position is calculated from the premiums:
Initial Cost = (Premium of Low Strike Option + Premium of High Strike Option) - (2 * Premium of Middle Strike Option)
If this value is positive, it's a debit (cost to you). If negative, it's a credit (money received).
Payoff Calculation Logic (at Expiration)
The intrinsic value of an option at expiration is:
- Call: max(0, Final Stock Price - Strike Price)
- Put: max(0, Strike Price - Final Stock Price)
The total payoff is the sum of the values of the individual legs (remembering you are *short* the middle strikes, so their value is subtracted):
Payoff = Value(Low Strike) - 2 * Value(Middle Strike) + Value(High Strike)
This calculator applies this logic based on the Option Type you select.
Butterfly Spread Examples
Click on an example to see the setup and result for a specific final stock price:
Example 1: Call Butterfly - Max Profit Scenario
Scenario: You set up a Call Butterfly expecting the stock to close exactly at the middle strike.
Details:
- Option Type: Call
- Strike 1 (95): Premium 3.50
- Strike 2 (100): Premium 5.00
- Strike 3 (105): Premium 3.00
- Final Stock Price: 100.00
Calculation:
- Initial Cost = (3.50 + 3.00) - (2 * 5.00) = 6.50 - 10.00 = -3.50 (This is a credit, or effectively costs +3.50 debit)
- Payoff = max(0, 100-95) - 2*max(0, 100-100) + max(0, 100-105) = 5 - 2*0 + 0 = 5.00
- Net P/L = Payoff - Initial Cost = 5.00 - 3.50 = +1.50
Result: Net Profit of +1.50 per share.
Example 2: Call Butterfly - Max Loss Scenario (Below Low Strike)
Scenario: The stock price finishes well below the lowest strike.
Details:
- Option Type: Call
- Strike 1 (95): Premium 3.50
- Strike 2 (100): Premium 5.00
- Strike 3 (105): Premium 3.00
- Final Stock Price: 90.00
Calculation:
- Initial Cost = (3.50 + 3.00) - (2 * 5.00) = 3.50 (Debit)
- Payoff = max(0, 90-95) - 2*max(0, 90-100) + max(0, 90-105) = 0 - 2*0 + 0 = 0.00
- Net P/L = Payoff - Initial Cost = 0.00 - 3.50 = -3.50
Result: Net Loss of -3.50 per share (equal to the initial debit paid).
Example 3: Call Butterfly - Max Loss Scenario (Above High Strike)
Scenario: The stock price finishes well above the highest strike.
Details:
- Option Type: Call
- Strike 1 (95): Premium 3.50
- Strike 2 (100): Premium 5.00
- Strike 3 (105): Premium 3.00
- Final Stock Price: 110.00
Calculation:
- Initial Cost = (3.50 + 3.00) - (2 * 5.00) = 3.50 (Debit)
- Payoff = max(0, 110-95) - 2*max(0, 110-100) + max(0, 110-105) = 15 - 2*10 + 5 = 15 - 20 + 5 = 0.00
- Net P/L = Payoff - Initial Cost = 0.00 - 3.50 = -3.50
Result: Net Loss of -3.50 per share (equal to the initial debit paid).
Example 4: Call Butterfly - Between Low & Middle Strike
Scenario: The stock price finishes between the lowest and middle strikes.
Details:
- Option Type: Call
- Strike 1 (95): Premium 3.50
- Strike 2 (100): Premium 5.00
- Strike 3 (105): Premium 3.00
- Final Stock Price: 97.00
Calculation:
- Initial Cost = (3.50 + 3.00) - (2 * 5.00) = 3.50 (Debit)
- Payoff = max(0, 97-95) - 2*max(0, 97-100) + max(0, 97-105) = 2 - 2*0 + 0 = 2.00
- Net P/L = Payoff - Initial Cost = 2.00 - 3.50 = -1.50
Result: Net Loss of -1.50 per share.
Example 5: Call Butterfly - Between Middle & High Strike
Scenario: The stock price finishes between the middle and highest strikes.
Details:
- Option Type: Call
- Strike 1 (95): Premium 3.50
- Strike 2 (100): Premium 5.00
- Strike 3 (105): Premium 3.00
- Final Stock Price: 103.00
Calculation:
- Initial Cost = (3.50 + 3.00) - (2 * 5.00) = 3.50 (Debit)
- Payoff = max(0, 103-95) - 2*max(0, 103-100) + max(0, 103-105) = 8 - 2*3 + 0 = 8 - 6 + 0 = 2.00
- Net P/L = Payoff - Initial Cost = 2.00 - 3.50 = -1.50
Result: Net Loss of -1.50 per share.
Example 6: Put Butterfly - Max Profit Scenario
Scenario: You set up a Put Butterfly expecting the stock to close exactly at the middle strike.
Details:
- Option Type: Put
- Strike 1 (45): Premium 1.50
- Strike 2 (50): Premium 3.00
- Strike 3 (55): Premium 5.00
- Final Stock Price: 50.00
Calculation:
- Initial Cost = (1.50 + 5.00) - (2 * 3.00) = 6.50 - 6.00 = +0.50 (Debit)
- Payoff = max(0, 45-50) - 2*max(0, 50-50) + max(0, 55-50) = 0 - 2*0 + 5 = 5.00
- Net P/L = Payoff - Initial Cost = 5.00 - 0.50 = +4.50
Result: Net Profit of +4.50 per share.
Example 7: Put Butterfly - Max Loss Scenario (Above High Strike)
Scenario: The stock price finishes well above the highest strike.
Details:
- Option Type: Put
- Strike 1 (45): Premium 1.50
- Strike 2 (50): Premium 3.00
- Strike 3 (55): Premium 5.00
- Final Stock Price: 60.00
Calculation:
- Initial Cost = (1.50 + 5.00) - (2 * 3.00) = 0.50 (Debit)
- Payoff = max(0, 45-60) - 2*max(0, 50-60) + max(0, 55-60) = 0 - 2*0 + 0 = 0.00
- Net P/L = Payoff - Initial Cost = 0.00 - 0.50 = -0.50
Result: Net Loss of -0.50 per share (equal to the initial debit paid).
Example 8: Put Butterfly - Max Loss Scenario (Below Low Strike)
Scenario: The stock price finishes well below the lowest strike.
Details:
- Option Type: Put
- Strike 1 (45): Premium 1.50
- Strike 2 (50): Premium 3.00
- Strike 3 (55): Premium 5.00
- Final Stock Price: 40.00
Calculation:
- Initial Cost = (1.50 + 5.00) - (2 * 3.00) = 0.50 (Debit)
- Payoff = max(0, 45-40) - 2*max(0, 50-40) + max(0, 55-40) = 5 - 2*10 + 15 = 5 - 20 + 15 = 0.00
- Net P/L = Payoff - Initial Cost = 0.00 - 0.50 = -0.50
Result: Net Loss of -0.50 per share (equal to the initial debit paid).
Example 9: Call Butterfly - Not Equidistant Strikes
Scenario: A butterfly spread with non-equidistant strikes.
Details:
- Option Type: Call
- Strike 1 (20): Premium 8.00
- Strike 2 (25): Premium 4.00
- Strike 3 (30): Premium 1.50
- Final Stock Price: 26.00
Calculation:
- Initial Cost = (8.00 + 1.50) - (2 * 4.00) = 9.50 - 8.00 = +1.50 (Debit)
- Payoff = max(0, 26-20) - 2*max(0, 26-25) + max(0, 26-30) = 6 - 2*1 + 0 = 6 - 2 + 0 = 4.00
- Net P/L = Payoff - Initial Cost = 4.00 - 1.50 = +2.50
Result: Net Profit of +2.50 per share.
Example 10: Put Butterfly - Between Low & Middle Strike
Scenario: Stock price finishes between the lowest and middle strikes for a put butterfly.
Details:
- Option Type: Put
- Strike 1 (45): Premium 1.50
- Strike 2 (50): Premium 3.00
- Strike 3 (55): Premium 5.00
- Final Stock Price: 48.00
Calculation:
- Initial Cost = (1.50 + 5.00) - (2 * 3.00) = 0.50 (Debit)
- Payoff = max(0, 45-48) - 2*max(0, 50-48) + max(0, 55-48) = 0 - 2*2 + 7 = 0 - 4 + 7 = 3.00
- Net P/L = Payoff - Initial Cost = 3.00 - 0.50 = +2.50
Result: Net Profit of +2.50 per share.
Frequently Asked Questions about Butterfly Spreads
1. What is the basic structure of a Butterfly Spread?
A standard butterfly involves buying 1 option at a low strike, selling 2 options at a middle strike, and buying 1 option at a high strike, all with the same expiration date and underlying asset. It can be done with either call options or put options.
2. What is the goal of a Butterfly Spread?
The goal is to profit from an underlying asset that is expected to have low volatility and finish exactly (or very close to) the middle strike price at expiration. It's a neutral strategy.
3. What is the maximum potential profit?
The maximum profit occurs if the underlying asset's price finishes exactly at the middle strike price at expiration. The maximum profit per share (before commissions) is typically the difference between the middle and lower strike prices (S2 - S1) minus the initial debit paid (or plus the initial credit received). This calculator shows the profit/loss for a *specific* final price you enter.
4. What is the maximum potential loss?
The maximum loss is limited to the initial net premium paid (the debit) when setting up the trade. This occurs if the price at expiration is at or below the low strike (for calls) or at or above the high strike (for puts), causing all options to expire worthless or cancel each other out.
5. What are the break-even points?
There are typically two break-even points for an equidistant butterfly spread: one below the middle strike and one above. They are calculated based on the initial debit/credit and the strike widths. This calculator focuses on the P/L at a single specified price, not the break-even points themselves.
6. Why is it a 1-2-1 ratio?
The 1-2-1 ratio (buy 1, sell 2, buy 1) is standard because it creates a balanced payoff structure that limits both risk and reward, achieving the characteristic "butterfly" shape of the profit/loss graph.
7. Can I use non-equidistant strikes?
Yes, you can create non-equidistant butterfly spreads (sometimes called unbalanced or irregular butterflies). They alter the risk/reward profile. This calculator works correctly for any valid set of three strictly increasing strike prices.
8. How does this tool calculate profit/loss?
The tool first calculates the initial cost of the spread based on the premiums you enter. Then, for the specified final stock price at expiration, it calculates the intrinsic value of each option leg (zero if Out-of-the-Money). The total payoff is the sum of these values (long options add value, short options subtract value). The Net Profit/Loss is the Total Payoff minus the Initial Cost.
9. Does the calculator include commissions?
No, this calculator provides the profit or loss *before* considering brokerage commissions, which would slightly reduce the net profit or increase the net loss.
10. Can I close a butterfly spread before expiration?
Yes, you can close the position before expiration, but the profit or loss at that point will depend on time decay (theta), implied volatility (vega), and the current stock price, not just the intrinsic value. This calculator only shows the P/L exactly at expiration.
Important Considerations
- Commissions: Remember that broker commissions will impact your actual net profit or loss.
- Early Assignment/Exercise: While rare for the short options in a butterfly (unless deep in the money), early assignment is possible and can complicate the trade before expiration.
- Time Decay (Theta): Butterfly spreads are positively impacted by time decay (Theta) as expiration approaches, assuming the price is near the middle strike.
- Volatility (Vega): Changes in implied volatility (Vega) typically have a negative impact on a long butterfly spread.
This calculator is a simplified tool for understanding the *expiration* payoff. Actual trading involves more complex factors.
