I understand fundamentally how butterfly spreads work. Like for a call butterfly, you would basically buy like 10 calls at one strike, 10 calls at another, and then sell 20 calls at a strike price that is inbetween.

My question though, is although they "say" that there is limited loss (since you can only lose what you put in), and the upside is limited, couldn't you actually lose more though? I mean, if you buy a call butterfly, and the premium gets hammered that day, clearly when you bought those 20 call contracts, they are in the red. Is it possible for the contract for which you sold the 20 contracts, to have you end up with a bigger loss than you had to begin with? What if the loss from that does not even out, like a butterfly "should".

Also, when you have to sell calls in a butterfly to begin with if you have a long call butterfly, does that mean you are borrowing on margin??? So if you have not been approved for margin yet, you cannot do butterflies, right?

I am just terrified of say, making a butterfly trade and only putting in like 100 bucks, but then being liable for 10k or something from selling that call....

Also, when you sell that call to begin with, is that a naked call?