Butterfly call

Article contents

At a glance

Setting up the strategy

  1. Sell two call options on the same underlying stock with the same expiration at a specific price.

  2. Buy one call option on the same underlying stock with a strike price below the short strike price.

  3. Buy one option on the same underlying stock with the same expiration as the first call option you bought. It must have the same strike distance between the lower strike and the short strike.
At expiration, you want the stock to close at the strike price of the two short call options.

Who should run this?

Advanced traders only.

Margin requirements

Learn more about Questrade’s option margin requirements.

Strategy overview

A butterfly call is an option strategy in which a trader sells two call options at a specific strike price, while simultaneously buying one call option below the short strike price, and buying one call option above the short strike price.

Market outlook

  • Neutral

Strategy benefits

  • Profit potential is good because there’s a relatively low cost required entering into the strategy.
  • Risk is minimal if the stock were to rise or drop significantly. 
  • Maximum loss and maximum profit can be accurately estimated.

Strategy downsides

  • Strategy should only be implemented by experienced traders due to its complexity.

Butterfly call example


ABC shares are currently trading at $32 in February 2013, and you believe the stock will remain stagnant for the next 30 days. To set up a butterfly put strategy, you do the following:

  • Buy one March $27 call option for $570 ($5.70 premium  x 100 shares)
  • Sell two March $32 call options for $394 ($1.97 premium x 200 shares)
  • Buy one March $37 call option for $14 ($0.14 premium x 100 shares)
To enter into this strategy, you will be initially debited $190.

Possible results

  1. Upon expiration in March, the stock drops slightly to $31.90, meaning the two $32 call options and the $37 call option all expire worthless.  However, the $27 call option finishes in the money and has an intrinsic value of $490 ($4.90 per share).  Once you factor in the initial debit of $190, your total profit would be $300 (490 – 190).

  2. Upon expiration in March, ABC shares are trading at $26.50, which results in all call options expiring worthless. Your total loss would be the $190 you used to enter into the strategy.

  3. At expiration, the shares close at $42 – this results in the two short call options being assigned.

    Your total loss would be the $190 that you paid for this strategy.  Then, you will exercise the two long calls to cover the assignment on the two short calls.

Profit and loss explained

Maximum profit

Maximum profit = strike price of short call – [strike price of lower strike long call x number of contracts on the lower strike x 100]  – net debit

Maximum loss

Maximum loss = net debit paid

Break-even at expiration

There are two break-even points at expiration:

  • Break-even point #1= strike price of high strike long call – net debit paid per share
  • Break-even point #2 = strike price of low strike long call + net debit paid per share

Sample calculations

  • Stock value at start of strategy: $32
  • To execute the strategy: Buy $27 call option for $570, Sell two $32 call options for $394, Buy $37 call option for $14
  • Result: $190 net debit
Stock price at expiration Profit and loss calculations 
[$1.97 (option premium received per share for short call options)
x 200 shares (two short call legs)]
  [($5.70 (option premium per share paid for lower long call option) x 100 shares)
+ $0.14 (option premium per share paid for higher long call option)
x 100 shares)]
= $190 loss
$31.90 $31.90 (stock price at expiration)
-$27 (strike price of long call)
x 100 (1 option contract, comprised of 100 shares)
-$190 (net debit)
= $300 profit

$42 In this case, your two short options would be assigned, and you would need to exercise the two long options to obtain shares for your assignment.
$32 x 200 (price per share paid received for two short call options)
- $27 x 100 (price per share paid for lower long call option)
- $37 x 100 (price per share paid for higher long call option)
- $190 net debit (initial net debit to enter into strategy)
= $190 loss

: commission fees are not included in the above calculations.

Payoff diagram

Creating a butterfly call

Standard order details

Order detail


Symbol lookup field

Click  and change the mode to , then enter the symbol you want to buy or sell.

Tip: if you don't know the symbol name, try entering the company name.

The default expiration date, strike price, and strategy appear. 

Modify the expiration date, strike price, and option strategy accordingly. For more information, see Elements of an option quote.

Action The buy or sell action is set for you when you select the strategy type.

Select a value using the arrows , or enter a value manually.

Note: by default, the quantity will be populated with the value set in your user preferences.
Order type Select the type of order you want to submit. When creating strategy orders, only Limit or Market order types are available. For more information, see Order types.

The limit order type requires you to fill in additional fields. Refer to the table section below for details.

Select a duration to specify how long the order should remain active. For more information, see Order durations.

Route Select a route or leave the selection at Auto to let the platform determine the best one. Canadian routes will be listed for Canadian symbols and U.S. routes will be listed for U.S symbols.

This field will be filtered according to the route selection. It indicates where you prefer the order to be executed. Leave the selection at Auto to let the platform determine the best route.

Note: sub-route selection is only available for Canadian symbols.

Specify the account you want to use to submit an order. This field will display the account you have set as your default under user preferences, or the account you have selected in any of the linked windows. See Linking and unlinking windows for details.

Order type-specific details
Limit Enter your limit price:

  • To have the price fluctuate according to real-time data, click the lock   and select either Follow ask price  or Follow bid price .
  • To choose a custom price, select Do not follow .
Note: if real-time market data is not available, the limit price will be blank and the float limit icon will be unlocked.

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