Multi-leg strategies
What is a Broken Wing Butterfly and how do I eliminate risk on one side of the trade?
By Easy Money Scanner · Educational reference · Not investment advice
The short answer
A Broken Wing Butterfly shifts one of the outer strikes closer to the body, removing risk on one side (often for no or a net credit) while retaining defined risk on the other.
How it works
This asymmetry creates a directional bias and can eliminate loss potential beyond the untouched side, but it also shifts breakeven points and may increase maximum loss on the remaining side.
An example
In a call Broken Wing Butterfly, buy a 100 call, sell two 105 calls, buy a 108 call instead of 110, narrowing the upper wing to collect a credit and remove downside risk.
Risk & limitations
Eliminating risk on one side does not mean riskless; the untouched side can still produce a loss, and the structure's asymmetry requires a directional view that may be wrong.
Examples are hypothetical, not trade recommendations. US contract and regulatory references do not automatically apply in Canada. Rules, margin requirements and broker policies can change; confirm them with the relevant authority and your broker.