Skip Strike Butterfly
A butterfly with asymmetric wings: one strike is skipped on the upper wing, cheapening the debit in exchange for extra risk on that side.
Profit / Loss Diagram
Skip Strike Call Butterfly at expiration
What is this strategy?
The Skip Strike Butterfly — also called a broken wing butterfly — is a butterfly with asymmetric wings. You buy a call at the lower strike (A), sell two at the middle strike (B), and buy one at a higher strike (D), deliberately skipping the intermediate strike. The result is an upper wing wider than the lower one: the long option above is cheaper because it sits further from the money, so the net debit falls sharply compared with a regular butterfly. It should not be confused with a wide but symmetric butterfly: what defines this structure is precisely the asymmetry.
That cheapening is not free. In a regular butterfly the loss is capped at the debit on both sides; here it is capped only on the narrow side. Above the upper strike the payoff settles at a negative value equal to the difference between the short wing width and the wide wing width, so the maximum upside loss is (wide wing − short wing) × 100 plus the debit paid. The structure’s risk is therefore asymmetric, and you must consciously decide which side carries the extra exposure.
The Skip Strike Butterfly fits when you expect the underlying to finish near the middle strike and consider a strong move toward the wide-wing side unlikely. It is common on indices such as SPY, where the strike chain is dense enough to choose precisely which strike to skip. If structured to collect a net credit, risk disappears entirely on the narrow side, which is why many professional traders prefer it to the classic butterfly.
Construction
| Action | Instrument | Strike | Expiration | Example |
|---|---|---|---|---|
| BUY | 1 Call | Lower strike (A) | 30-45 DTE | +1 SPY Sep 425 Call |
| SELL | 2 Calls | Middle strike (B) | 30-45 DTE | -2 SPY Sep 435 Call |
| BUY | 1 Call | Upper strike (D) — 445 is skipped | 30-45 DTE | +1 SPY Sep 455 Call |
Example
Scenario: SPY at $428. The lower wing spans 10 points (425–435) and the upper 20 (435–455): skipping the 445 strike cuts the debit sharply, but creates risk above $455.
- Call Purchased (425) +1 SPY Sep 425 Call @ $11.00
- Calls Sold (435) -2 SPY Sep 435 Call @ $5.50 each
- Call Purchased (455) +1 SPY Sep 455 Call @ $0.90
- Net Debit $90 — (11.00 − 11.00 + 0.90) × 100
- Maximum Gain $910 — (10 × 100) − 90, with SPY at $435 at expiration
- Maximum Loss (downside) $90 — the debit, with SPY below $425
- Maximum Loss (upside) $1,090 — (20 − 10) × 100 + 90, with SPY above $455
- Breakevens $425.90 (425 + 0.90) and $444.10 (435 + 10 − 0.90)
- Profit if SPY = $435 $910 (maximum gain)
The Greeks
Delta is neutral at the middle strike, where you expect price to sit. Balanced on both sides.
Favourable theta, though less than a regular butterfly because of the wider spacing. Still positive, especially near the end.
Net negative vega around the middle strike: a drop in volatility helps the position. The effect is smaller than in a regular butterfly because the upper long leg sits further from the money.
Negative gamma in the middle. The wider spacing makes gamma less severe than in a regular butterfly.
Position Management
- 01 Set a Clear Target Range Before opening, work out exactly where you expect price to be. Maximum gain is reached with SPY right at the middle strike ($435 in the example).
- 02 Close Early if Price Reaches Target If SPY reaches $435 a week before expiration, close the whole position. Bank the gain rather than risk price continuing toward the wide wing.
- 03 Monitor the Profit Zone Watch above all the distance to the wide wing: while SPY stays below the upper breakeven ($444.10 here) the position remains profitable; beyond that the loss grows fast.
- 04 Consider a Partial Close If SPY approaches $435, consider closing the 2 short calls first to bank partial gains, keeping the longs in case the move continues.
- 05 Adjust if It Moves Out of Range If SPY breaks upward toward the upper strike, close: that is the only side with expanded risk. Below the lower strike the loss is already capped at the debit and letting it expire usually pays.