1. What it is
ABG uses four legs: buy an anchor option, sell two options at separately adjustable strikes, then buy a farther wing. Matching the two short strikes gives the familiar 1:2:1 broken-wing butterfly.
2. Why use it
Move risk toward one side by using unequal widths.
3. How the numbers work
View example
- Buy 1 × Call · Strike 100
- Sell 1 × Call · Strike 105
- Sell 1 × Call · Strike 110
- Buy 1 × Call · Strike 118
All option legs have the same expiration.
- Option premium paid
- 1
- Expiration breakeven
- 101 / 114
- Maximum expiration profit
- 4
- Maximum expiration loss
- 4
- Underlying at expiration 100 → Loss 1
- Underlying at expiration 110 → Profit 4
4. How it changes
Delta and the location of theta and gamma exposure become asymmetric. Shifting short strikes also changes the peak into a plateau or changes its width.
5. What to watch for
Unequal wing widths produce different tail losses. Compute both sides; the entry debit alone need not be the maximum loss.
The name alone does not determine the shape. In ABG, read both short strikes and both outer strikes before assuming a textbook butterfly.
Examples use illustrative entry prices and amounts per underlying unit, before costs. Contract amounts require the contract multiplier. Expiration payoffs assume the illustrated legs remain intact; earlier position values and exercise or assignment outcomes can differ.