A Broken Wing Butterfly (BWB) is a modified butterfly spread where the distance between strikes is unequal — one wing is wider than the other — creating an asymmetric risk-reward profile compared to a standard butterfly. A Call BWB, for example, might involve buying one lower strike call, selling two middle strike calls, and buying one further OTM call at a strike that is further away than a standard butterfly would use. The asymmetry means the position can be structured for zero or even net credit, eliminating loss on one side entirely while maintaining a defined profit zone. BWBs are used by traders who want the income characteristics of a butterfly with a directional tilt and improved risk management on the favoured side.
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