# Upper Breakeven of Butterfly using Calls

Could someone please explain the upper breakeven formula for the butterfly using calls? I don’t understand the part where we multiply the short strike by 2 and subtract it by the lower call strike.

Thanks!

Using calls and assuming your the long I remember it this way.

Calculate the max profit from the strategy assuming the stock price at expiration finishes at exactly the strike price of the two calls you wrote. Now add that value to the strike of the two calls you wrote, and you’ll get your break even price. You can also subtract this value from the strike of the two calls you wrote for the bottom one.

Ive never seen the formula you mentioned above.

Now you add the cost to the lower long strike to find the first breakpoint and subtract from the upper long strike to find the other one.

Keep in mind your cost is a positive number.

This is the method I use as well, but the curriculum has a different formula, which is 2(X2) - X1 - [C1 - 2(C2) + C3].

I believe your method only works if the short calls strike is equidistant from the longs, but the formula above will apply even if the short calls are not equidistant.

Actually, the formula you post is requiring a balanced (equidistance) butterfly “2(X2) - X1 - [C1 - 2(C2) + C3]”. You’re basically calculating what the higher long is based on the middle and lower strikes… If they arent equidistance, there’s no way that formula will work… read the formula! They are trying to find X3 and assuming X3= 2(X2) - X1

My formula does not require equidistance. You take X3 - cost, where cost is [C1 - 2(C2) + C3], which is the breakeven #2.

Ahh, good point and thank you. Don’t get why they don’t just write X3 - [C1 - 2(C2) + C3]…

Perhaps the easiest way to determine the breakeven points is to start with the profit at X2 (= payoff at X2 − cost):

• Lower breakeven = X2 − profit at X2
• Upper breakeven = X2 + profit at X2

its like no one listens to me.

but for real, quit memorizing formulas for options and literally just think about the cash flows.

Does the study note still include the payoff graphs? i found them much easier to understand than the convoluted, clumsy, cludgy, less than intuitive formulas.

6 out of 9 people reading this don’t realize that a protective put has an identical payoff structure to a long call.

8 out of 9 is my guess…