Enter the higher strike price, lower strike price, and premium into the calculator to determine the butterfly spread maximum profit per option.

Butterfly Spread Profit Formula

The following formula is used to calculate the maximum profit of a butterfly spread.

MP = HS – LS – P

  • Where MP is the maximum profit per contract ($)
  • HS is the higher strike price ($)
  • LS is the lower strike price ($)
  • P is the premium paid ($)

To calculate the butterfly spread profit, subtract the lower strike price and the premium from the highest strike price.

What is a butterfly spread?

Definition:

A butterfly spread is a financial strategy that combines both bull and bear spreads together to create an investment that has a fixed risk but also a maximum profit.

How to calculate butterfly spread profit?

Example Problem:

The following example outlines how to calculate the maximum profit of a long butterfly spread.

First, determine the lowest strike price. In this example, the low strike price is $5.00.

Next, determine the higher strike price. The highest strike price in this spread is $12.50.

Next, determine the average premium paid. The average premium for this problem is $2.00.

Finally, calculate the maximum profit per contract using the formula above:

MP = HS – LS – P

MP = 12.50 – 5.00 – 2.00

MP = $5.50.00