Hello everyone! So, I heard something yesterday that has really stuck with me and I’ll try my best to share it. A man had a baseball, a football, a golf club, and a nail. He held up each item, “this baseball is worth maybe $5 dollars in my hands but in Ken Griffey Jr.’s hands, it’s worth millions. In my hands, this football is worth maybe $15 to $20 dollars but in Peyton Manning’s hands its worth millions. In my hands, this golf club could be worth $100 dollars, but in Tiger Woods hands its significantly higher. With this nail, in my hands, I might build you a bird house, or stick two pieces of wood together, but in Jesus hands, we’re made free!” He closed by saying, “you see, it’s all a matter of whose hands that its in”. Thank God we’re in his hands!
Ok, now let’s turn our attention to a 3-month Broken Wing Butterfly. It’s one of my favorites and why I consider it one of my top 5 favorite options strategies. You may have also heard it called the baby rhino spread options strategy. It’s easy to set up, easy to adjust, and very capable of earning a positive return. Not something options strategies are particularly great at, in my opinion.
So, in today’s post, let’s go through the 3-month broken wing butterfly options strategy to uncover what may be possible.
Post Agenda
- 3-Month Broken Wing Butterfly Spread Overview
- 3-Month Broken Wing Butterfly Spread Construction
- 3-Month Broken Wing Butterfly Spread Management
- 3-Month Broken Wing Butterfly Spread Adjustments

3-Month Broken Wing Butterfly Overview
A broken wing butterfly is essentially two different spreads of unequal strike widths. It’s the combination of a narrower bear put debit spread and a wider bull put credit spread. Combined together to create a profit tent or a range in which the spread earns a positive return. Here is a complete detailed review of the broken wing butterfly options strategy for those that need it.
Additionally, by combining both spreads the trader is able to maintain a defined risk outcome but potentially limit the risk to one side of the market. In this particular case, I’m setting up a put broken wing butterfly so my losses would be considerably less if the market continued higher. Here is an image that should help to visualize the spread.

You’ll notice in either direction the losses remain limited but less so to the upside. If a trader was expecting a neutral market after a bullish period then this trade could make sense. In this case, the market would need to move nearly 15% higher immediately for the max loss on the upside to be realized. Similarly, the market would have to move about 18% lower for the max loss on the downside.
Regardless, here are a few of the more notable characteristics related to the broken wing butterfly strategy.
- Directional bias. The strategy allows for a bullish or bearish market outlook.
- Limited risk with higher return potential. If the underlying trades near the profit tent or the middle of the spread.
- Negative vega strategy. The broken wing butterfly spread performs better as volatility declines.
Broken Wing Butterfly Spread Construction
In this case, a 3-month put broken wing butterfly requires first that a desirable expiration cycle exists for the trade. Keeping with our example above, trading SPY would offer the most flexibility to a butterfly trader. No other asset has more liquidity or expiration options than SPY, as of today.
From there, the strategy is relatively easy to execute. Again, keeping with the above example. It’s the purchase of 1 put option just in the money, the sell of 2 put options just out of the money, and a final put purchased further out of the money. Here it is in summary;
- Buy 1 ITM put
- Sell 2 lower strike OTM puts
- Buy 1 even lower strike OTM put
I prefer to set the spread up with as much downside room as possible. However, the trade is incredibly flexible and any market expectation can be accounted for. If I were more bearish I’d keep my first long put out of the money as well. If I were more bullish I could slide that first long put further in the money.
To make this a little easier for those preferring to use delta as a guide for strike selection. Here are the deltas I prefer at entry for my broken wing butterflies.
- 1 long put @ 50-60 Delta
- 2 short puts @ 30-40 Delta
- 1 long put @ 15-25 Delta
There isn’t an exact science to it. The best approach is to build it out and view it within the analyze tab of Thinkorswim or another graphing program. This allows the spread to be constructed based on the traders sentiment toward the market.
Broken Wing Butterfly Spread Management
Managing the broken wing butterfly need not be challenging. Of course, I should say it, with options anything can be. However, to manage this spread really means keeping an eye on were price is within the spread. Should price breach one of the boundaries of the trade then an adjustment could be warranted.
That said, if price were to move higher the trader may elect to wait a while longer to make such an adjustment. The benefit of the broken wing butterfly variation over the butterfly itself is the lesser loss to one side. Often, a trade will breach one side of the profit tent before pulling back within. When this happens the trade would likely return to profit upon the pullback.
Finally, as it is with any options strategy, having a predetermined number of adjustments for this spread is probably a sound plan. As the market ebbs and flows, too many adjustments churns out commissions that erode the bottom line. Additionally, a predetermined profit target and stop loss is always a good idea. If the underlying price makes a large move either direction the trade may not be capable of being salvaged for a profit. In that instance, the trader would throw more and more money at the strategy just hoping to get back to even and from experience, I can confirm, that isn’t a successful approach.
3-Month Broken Wing Butterfly Spread Adjustments
As I mentioned above, having a predetermined number of adjustments is my preference when trading the strategy. In reality, the trade could be adjusted every time price moved too far until expiration with hope the final price fell within the profit tent. Still, I don’t prefer that approach myself.
That said there is really only a few adjustments I look to place on a poorly performing broken wing butterfly.
- Close the original butterfly and open a new one if price falls and at least 50 days to expiration remains.
- Open a calendar spread above the profit tent if price rises.
That’s it. I don’t get too aggressive and I generally prefer to be as patient as possible before adjusting the spread. If price breaches my tent to the upside I am a little quicker to open a calendar spread than I am if price goes lower. In that case, I usually hold out as long as I can hoping the comes back up. If it doesn’t, at least I haven’t had to adjust multiple times. I just wait until it’s near the 50 days to expiration, make my adjustment, and hope for the best from there. If the trade works out then great, if it doesn’t, then it’s on to the next one.
Final Thoughts
To close, the 3-month broken wing butterfly or the baby rhino spread is one of my all time favorites. I like the slower nature of the trade and should the market not be running wildly in either direction then it could make sense. That said, as I write this today on January 5th 2025 I don’t have any baby rhino spreads open. The market seems to be in unknown territory which almost always lead to volatility. Which is precisely what we’ve seen lately. One day we’re diving off a cliff and the next we’re up nearly 100 points.
In all, what I’m saying is, I think the strategy is great but I’m not an expert nor an advisor. Please always do your own research and be sure you’re aware of the risks with trading prior to doing so. If you find that the 3-month broken wing butterfly and it’s respective adjustments could suit you then I’ve included my 2 cents above. Otherwise, I hope you’ll share whichever strategy works well for you in the comments. I know anyone reading this would love to hear about it.
Until the next post.
God bless,
Jeff