LOCO Butterfly Strategy
LOCO (El Pollo Loco Holdings, Inc.), in the Consumer Cyclical sector, (Restaurants industry), listed on NASDAQ.
El Pollo Loco Holdings, Inc., through its subsidiary, El Pollo Loco, Inc., develops, franchises, licenses, and operates quick-service restaurants under the El Pollo Loco name. As of May 04, 2022, the company operated 480 restaurants comprising 189 company-operated and 291 franchised restaurants located in California, Nevada, Arizona, Texas, Utah, and Louisiana. It also licenses one restaurant in the Philippines. The company was formerly known as Chicken Acquisition Corp. and changed its name to El Pollo Loco Holdings, Inc. in April 2014. El Pollo Loco Holdings, Inc. was founded in 1975 and is headquartered in Costa Mesa, California.
LOCO (El Pollo Loco Holdings, Inc.) trades in the Consumer Cyclical sector, specifically Restaurants, with a market capitalization of approximately $400.2M, a trailing P/E of 13.25, a beta of 0.70 versus the broader market, a 52-week range of 8.87-15.9, average daily share volume of 323K, a public-listing history dating back to 2014, approximately 4K full-time employees. These structural characteristics shape how LOCO stock options price implied volatility around earnings windows, capital events, and macro-driven sector rotations.
A beta of 0.70 indicates LOCO has historically moved less than the broader market, dampening realized volatility and producing tighter expected-move bands per unit of dollar exposure.
What is a butterfly on LOCO?
A long call butterfly buys one lower-strike call, sells two ATM calls, and buys one higher-strike call, paying a small net debit for a defined-risk position that maxes out if the underlying pins the middle strike at expiration.
Current LOCO snapshot
As of May 14, 2026, spot at $13.39, ATM IV 38.50%, IV rank 10.45%, expected move 11.04%. The butterfly on LOCO below is built from the same end-of-day chain, with strikes snapped to listed contracts and premiums pulled from the bid/ask midpoint at a 35-day expiry.
Why this butterfly structure on LOCO specifically: LOCO IV at 38.50% is on the cheap side of its 1-year range, which favors premium-buying structures like a LOCO butterfly, with a market-implied 1-standard-deviation move of approximately 11.04% (roughly $1.48 on the underlying). The 35-day window matched to the front-month expiry keeps theta exposure bounded while still capturing the post-snapshot move; longer-dated LOCO expiries trade a higher absolute premium for lower per-day decay. Position sizing on LOCO should anchor to the underlying notional of $13.39 per share and to the trader's directional view on LOCO stock.
LOCO butterfly setup
The LOCO butterfly below is built from the end-of-day chain, with each option leg priced at the bid/ask midpoint of its listed strike. With LOCO near $13.39, the first option leg uses a $12.72 strike; additional legs (when the strategy has them) anchor to spot-relative offsets. Premiums come from the bid/ask midpoint on the listed LOCO chain at a 35-day expiry; the cross-strike IV skew is reflected directly in the per-leg values rather than approximated. Quantity sizing assumes one contract per option leg (or 100 LOCO shares for the stock leg in covered calls and collars).
| Action | Type | Strike / Basis | Premium (est) |
|---|---|---|---|
| Buy 1 | Call | $12.72 | N/A |
| Sell 2 | Call | $13.39 | N/A |
| Buy 1 | Call | $14.06 | N/A |
LOCO butterfly risk and reward
- Net Premium / Debit
- N/A
- Max Profit (per contract)
- Unbounded
- Max Loss (per contract)
- Unbounded
- Breakeven(s)
- None on modeled curve
- Risk / Reward Ratio
- N/A
Max profit equals the wing width minus net debit times 100 (reached when the underlying pins the middle strike); max loss equals the net debit times 100. Two breakevens at lower-wing plus debit and upper-wing minus debit.
LOCO butterfly payoff curve
Modeled P&L at expiration across a range of underlying prices for the butterfly on LOCO. Each row is one sampled price point from the computed payoff curve; the full curve uses 200 price points internally before being summarized into 10 rows here.
When traders use butterfly on LOCO
Butterflies on LOCO are pinning bets - traders use them when they expect LOCO to settle near a specific level at expiration (often the prior close, a round number, or the max-pain strike) and want defined-risk exposure to that outcome.
LOCO thesis for this butterfly
The market-implied 1-standard-deviation range for LOCO extends from approximately $11.91 on the downside to $14.87 on the upside. A LOCO long call butterfly is a pinning play: it pays maximum at the middle strike if LOCO settles there at expiration, with the wing legs capping both the cost and the maximum loss to the net debit. Current LOCO IV rank near 10.45% sits in the lower third of its 1-year distribution, where IV often re-expands toward the mean; this favors premium-buying structures and disadvantages premium-selling structures on LOCO at 38.50%. As a Consumer Cyclical name, LOCO options can move on sector-level news flow (peer earnings, regulatory updates, industry-specific macro data) in addition to LOCO-specific events.
LOCO butterfly positions are structurally neutral / pin (limited-risk, limited-reward); the modeled P&L assumes European-style exercise at expiration and ignores early assignment, transaction costs, dividends paid before expiry on the stock leg (when present), and the bid-ask spread on the listed chain. LOCO positions also carry Consumer Cyclical sector concentration risk; news flow inside the sector (peer earnings, regulatory shifts, supply-chain headlines) can move LOCO alongside the broader basket even when LOCO-specific fundamentals are unchanged. Always rebuild the position from current LOCO chain quotes before placing a trade.
Frequently asked questions
- What is a butterfly on LOCO?
- A butterfly on LOCO is the butterfly strategy applied to LOCO (stock). The strategy is structurally neutral / pin (limited-risk, limited-reward): A long call butterfly buys one lower-strike call, sells two ATM calls, and buys one higher-strike call, paying a small net debit for a defined-risk position that maxes out if the underlying pins the middle strike at expiration. With LOCO stock trading near $13.39, the strikes shown on this page are snapped to the nearest listed LOCO chain strike and the premiums come straight from the end-of-day bid/ask midpoint.
- How are LOCO butterfly max profit and max loss calculated?
- Max profit equals the wing width minus net debit times 100 (reached when the underlying pins the middle strike); max loss equals the net debit times 100. Two breakevens at lower-wing plus debit and upper-wing minus debit. For the LOCO butterfly priced from the end-of-day chain at a 30-day expiry (ATM IV 38.50%), the computed maximum profit is unbounded per contract and the computed maximum loss is unbounded per contract. Live intraday quotes will differ as the chain moves through the trading session.
- What is the breakeven for a LOCO butterfly?
- The breakeven for the LOCO butterfly priced on this page is no defined breakeven on the modeled curve at expiration, derived from end-of-day chain premiums. Breakeven is the underlying price at which the strategy's P&L crosses zero ignoring transaction costs and assignment risk. The current LOCO market-implied 1-standard-deviation expected move is approximately 11.04%; if the move sits well outside the breakeven distance, the structure's risk-reward becomes correspondingly tighter.
- When should you consider a butterfly on LOCO?
- Butterflies on LOCO are pinning bets - traders use them when they expect LOCO to settle near a specific level at expiration (often the prior close, a round number, or the max-pain strike) and want defined-risk exposure to that outcome.
- How does current LOCO implied volatility affect this butterfly?
- LOCO ATM IV is at 38.50% with IV rank near 10.45%, which is on the low end of its 1-year range. Premium-buying structures (long call, long put, debit spreads) are relatively cheap in this regime; premium-selling structures collect less credit per unit risk.