Credit broken-wing butterfly
A broken-wing butterfly buys one call, sells two calls higher up and buys one more call further away, with a wider gap on the far side. Built slightly out of the money, it can be opened for a small net credit. This version does so on NIFTY weekly options two trading sessions before the Tuesday expiry, skipping event weeks and very low-volatility weeks, and holds to expiry day unless half the maximum loss is reached.How it trades
Results
PRE-BUILT · DEFAULTSWhere it made and lost money
Two trades cannot show where this structure earns, but they match how it is built. The one trade during which NIFTY rose more than 1% lost ₹3,266, as the rally pushed through the short body towards the wide wing and the stop at half the maximum loss was hit. The one trade during which NIFTY fell more than 1% made ₹94: all the calls lost value and the small entry credit was kept. That is the shape of a credit broken-wing call butterfly: little to gain on a fall, most to gain from a pin at the body, and the risk sits on a rally.
About this strategy
- At 15:00, two trading sessions before the nearest NIFTY weekly expiry, check that the week holds none of the listed event dates and that ATM implied volatility is at least 9%.
- Start at the ATM strike K: buy one call at K, sell two calls 200 points higher and buy one call a further 300 points higher.
- If those legs do not bring in at least 0.5 points of net credit, shift the whole structure one strike further out of the money and try again, up to 12 times; with no credit, no trade.
- The maximum loss is the 100-point difference between the wings times the quantity, minus the credit; close the position if it loses half of that.
- Otherwise close everything at 15:15 on expiry day, before settlement. There is no profit target.
Why traders use it
Opened for a credit, the structure keeps its credit if NIFTY stays below the lower call or falls, and it makes its largest gain if NIFTY settles right at the short strike on expiry. The wider upper wing is what turns the cost into a credit, and it also defines the worst case, so risk is known in advance. Short-dated weekly options decay fastest in the last sessions, which is why the trade is placed so close to expiry.
The year in plain words
With default settings on NIFTY from 1 Oct 2025 to 30 Sep 2026 the rules traded only twice: once in March 2026 for a ₹94 gain at expiry, and once in April for a ₹3,266 loss at the stop. The requirements for a net credit within 12 strikes, ATM IV of at least 9% and no event in the week left almost no qualifying weeks. The total was a ₹3,172 loss before costs. The after-costs run ended at a ₹3,116 loss, slightly smaller, because one fill at the real bid and ask was better than the stale last traded price used before costs. Two trades say nothing reliable about the method.
What the settings do
Risks
- The risk is concentrated on a sharp rise through the wide wing, where the loss approaches the 100-point wing difference times the quantity.
- Positions are held over several sessions, so overnight gaps can jump past the stop level.
- The credit is small, so most of the profit depends on NIFTY finishing near the short strike, which rarely happens exactly.
- The entry rules are strict enough that the strategy may sit idle for months.
Who it suits
Experienced option traders who understand butterfly payoffs, want a defined-risk short-dated structure with a mild bearish-to-neutral tilt, and are comfortable with very infrequent trades.
Questions traders ask
What is a broken-wing butterfly?
It is a butterfly whose two wings are unequal: buy one option, sell two at a middle strike, and buy one further away with a wider gap on one side. The uneven wings can turn the trade into a credit, so there is no loss on one side, while the wider wing sets the maximum loss on the other.
Is the credit broken-wing call butterfly profitable on NIFTY?
This backtest cannot say. From 1 Oct 2025 to 30 Sep 2026 it traded only twice, losing ₹3,172 before costs and ₹3,116 after ₹20 per order and bid-ask slippage. Two trades are far too few to judge, and past results do not guarantee future ones.
Why so few trades?
A trade needs all of these at once: the right number of sessions before expiry, no listed event that week, ATM implied volatility of at least 9%, and a net credit of at least 0.5 points within 12 strikes of the money. Two sessions before expiry, a credit is hard to find, so most weeks are skipped.
Why close before expiry settlement?
Squaring off at 15:15 on expiry day avoids in-the-money options being settled, which can attract STT on the settlement value and leave the exact payoff to the final price. Closing in the market keeps the outcome controlled.