What Is a Solo Butterfly Spread
A solo butterfly is an options strategy that combines a bull call spread and a bear call spread at the same underlying asset and expiration. It uses four options with three different strike prices: one lower strike, one middle strike, and one higher strike. The structure involves buying one option at the lower strike, selling two options at the middle strike, and buying one option at the higher strike. All options are typically calls, though put-based versions exist with identical payoff logic. The strategy is designed to profit if the underlying price stays near the middle strike at expiration. Maximum profit equals the net credit received minus commissions, achieved when the underlying closes exactly at the middle strike at expiration. Maximum risk is limited to the net debit paid, occurring if the underlying moves sharply away from the middle strike. The payoff profile is symmetrical, with two breakeven points equidistant from the middle strike. For example, if a trader buys a 90 call, sells two 100 calls, and buys a 110 call on a stock trading at 100, the middle strike defines the profit zone. The strategy is often used when an investor expects low volatility and a range-bound price move before expiration. The solo butterfly is distinct from a standard butterfly because it emphasizes a single, precise target price as the primary profit anchor. The structure is also known as a long butterfly spread with calls or a long butterfly spread with puts depending on the options used. Traders select this strategy to express a high-conviction view that the underlying will remain within a narrow band. The risk-reward ratio is capped on both sides, making it a defined-risk, defined-reward trade. The strategy is popular among retail and institutional traders for earnings or event-driven periods where a sharp move is unlikely. The margin requirement is typically lower than naked option writing because the long wings provide offsetting protection. The strategy can be constructed using index options such as SPX or individual stock options like AAPL or TSLA. The cost of the spread depends on implied volatility, time to expiration, and the distance between strikes. The solo butterfly is a vertical spread variant that combines directional neutrality with volatility sensitivity. The position delta near the middle strike is close to zero, meaning the strategy is relatively insensitive to small price moves. The gamma peaks near the middle strike, creating convexity that benefits the trader if the underlying stays in range. The theta decay is highest at the middle strike, which accelerates profit capture as expiration approaches. The vega exposure is generally positive for the long butterfly, meaning the strategy benefits from rising implied volatility if the underlying stays near the middle strike. The position is sometimes called a money butterfly because the maximum profit is capped and the maximum loss is limited to the initial debit. The strategy is widely used in volatility arbitrage and hedging contexts where precise price targeting is required. The solo butterfly is a core building block for more complex multi-leg strategies such as iron butterflies and ratio spreads.
The solo butterfly spread is constructed by simultaneously buying one out-of-the-money call, selling two at-the-money calls, and buying one further out-of-the-money call. All options share the same underlying asset and expiration date. The strike prices are typically equally spaced, such as 90, 100, and 110, though unequal spacing is possible. The trader pays a net debit to establish the position, which represents the maximum possible loss. The maximum profit is the difference between the middle strike and the lower strike minus the net debit paid. For instance, if the 90 call costs 12, the 100 call sells for 5, and the 110 call costs 3, the net debit is 10. The maximum profit is 10 if the underlying closes at 100 at expiration. The breakeven points are 90 and 110 in this example, meaning the underlying must stay between those two prices for the trade to be profitable. The risk-reward profile is symmetric, with the profit zone concentrated around the middle