Broken wing butterfly option spread strategy

Bullish	Long call	Covered Call	Bull call spread	Bull put spread	Short put
Bearish	Long put	Short stock with protective Call	Bear put spread	Bear call spread	Short call
Neutral	Butterfly spread	calendar spread	Double Diagoal	Condor	covered combo
Non-neutral & Misc	Sell straddle	Collar	Broken wing butterfly	Ratio Spreads

 

Broken wing butterfly option strategy involves 4 legs of options similar to butterfly option trade. A butterfly option is simply defined as shorting two at the money options and buying two other options of same strike difference  to cover the shorts making them spreads instead of naked shorts. Broken wing butterfly is where strikes difference is different.

Let compare regular butterfly option strategy and broken wing butterfly:

Butterfly option strategy	Broken wing butterfly option strategy
A butterfly strategy can be more simplified as 2 shorts at same strike and longs in equal strike distance from shorts.	A brokenwing butterfly strategy is 2 shorts at same strike and longs in non-equal strike distance from shorts.
Example: If IBM is trading at 120, Sell 2 IBM calls at 120, buy one call at 100 strike call  and another at 140 strike. This position will get maximum profit if IBM is trading at 120 by expiration of the options. Maximum Loss of the position will occur if IBM is below 100 or above 140 at expiration.	Example: If IBM is trading at 120, Sell 2 IBM calls at 120, buy one call at 100 strike call  and another at 130 strike. This position will get maximum profit if IBM is trading at 120 by expiration of the options. Maximum Loss of the position will occur if IBM is below 100 and minimizing of loss of risk on the upside.
Pros of butterfly options: 1. Simple and excellent option strategy for neutral markets. 2. Low margin requirement 3. Maximum loss is debit paid for the whole spread. 4. Greater risk to reward ratios ( ass high as 1:10)	Pros of Broken wing butterfly option strategy: 1. Great for neutral and slightly biased  markets. 2. Loss on only one side essentially eliminating other side of loss possibility. 3.Highly adjustable. means convert it to regular if the position moves in your favor offers less risk and more profit zone.
Cons of Butterfly options: 1. Limited profit zone 2. Loss if there is sudden move in the underlying. 3. very less profit until final 2 weeks before option expiration. 4. Less adjustable compared to Broken wing butterfly.	Cons of Broken wing butterfly: 1. Higher margin requirements making less yield compare to butterfly. 2. Very less profit until final two weeks of option expiraion.