Short Call Butterfly option strategy
Short Call Butterfly Strategy is a Volatility strategy. It is opposite to Long Call Butterfly. It offers lower reward for relatively higher risk.
Payoff at expiry
Nifty, lot size 65 · Nifty future 22,650 · 6 Oct 2026Legs
| Action | Option | Strike | Lots | Qty | Premium |
|---|---|---|---|---|---|
| SELL | ITM Call | 22,600 | 1 | 65 | ₹161.78 |
| BUY | ATM Call | 22,650 | 2 | 130 | ₹135.47 |
| SELL | OTM Call | 22,700 | 1 | 65 | ₹112.09 |
How it works
- Sell 1 ITM call at the 22,600 strike for ₹161.78, collecting the premium.
- Buy 2 ATM calls at the 22,650 strike for ₹135.47 each, paying the premium.
- Sell 1 OTM call at the 22,700 strike for ₹112.09, collecting the premium.
- You receive a net ₹190 upfront for the position. This is the most you can make.
Below 22,597 you profit, up to ₹190.
Between 22,597 and 22,704 you lose, up to ₹3,047.
Above 22,704 you profit, up to ₹190.
Set-up: Sell 1 lot ITM Call, Buy 2 lots ATM Call and Sell 1 lot deep OTM Call.
What happens if Nifty moves
Profit or loss at expiry| Nifty at expiry | Move | Profit / loss |
|---|---|---|
| 21,300 | −6% | +₹190 |
| 21,950 | −3% | +₹190 |
| 22,400 | −1% | +₹190 |
| 22,650 | Unchanged | −₹3,060 |
| 22,900 | +1% | +₹190 |
| 23,350 | +3% | +₹190 |
| 24,000 | +6% | +₹190 |
How the Greeks affect it
When to use
Short Call Butterfly strategy is Directional Neutral strategy that expects high volatility in the underlying to make money. In scenario where strike difference is not equal it is known as Modified Short Call Butterfly.
- Idle for the stock that is range bound for the long time and is expected to give breakout/ breakdown. It is net credit strategy with defined reward to risk.
Things to watch
- Time decay could be beneficial if the stock is near the extremes and can hurt if the stock expires near middle strike. Higher profit potential comes only near expiration.
Short Call Butterfly: questions
What is a Short Call Butterfly strategy?
Short Call Butterfly Strategy is a Volatility strategy. It is opposite to Long Call Butterfly. It offers lower reward for relatively higher risk.
When should you use a Short Call Butterfly?
Short Call Butterfly strategy is Directional Neutral strategy that expects high volatility in the underlying to make money. In scenario where strike difference is not equal it is known as Modified Short Call Butterfly.
How do you set up a Short Call Butterfly?
Sell 1 lot ITM Call, Buy 2 lots ATM Call and Sell 1 lot deep OTM Call.
What is the maximum profit of a Short Call Butterfly?
It is a net credit strategy. Maximum Profit arrives if the stock closes above highest call or below the first call.
What is the maximum loss of a Short Call Butterfly?
Maximum Loss occurs if the stock fails to give any momentum and expires near the ATM strike calls. Maximum loss is difference between first and second call less net credit received.
What is the breakeven of a Short Call Butterfly?
With Nifty at 22,650, the example on this page breaks even at 22,597 and 22,704 at expiry.