The "daily Call" From Option Alpha: Options Trading | Stock Options | Stock Trading | Trading Online

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to answer the question, “What is a broken wing butterfly in options?” When you’re options trading and you’re starting to create an option trade called a butterfly, sometimes what people will do is they will create a butterfly strategy whereby you break one of the wings. Now, this doesn’t necessarily mean that you just knock the wing off or you snap it. It’s basically that you just create this unbalanced position where you have an uneven distribution between the different wings of the butterfly position. For example, if you were going to create a butterfly position and you were going to sell with call options, the at the money strikes say around 300 and you were going to create a butterfly with calls, you would then maybe buy the 298 call option to create the lower wing, but on the upper side, instead of going $2 higher on the top side of the butterfly, you might go $3 higher or $4 higher or $5 higher