Interesting! It seems to be the smaller version (5 cm rather than 8 cm) of the insignia used by II. Marine Brigade Ehrhardt.
These badges, sometimes presented as "badge for armband" (Einwohnerwehr Wilhemshawen using this insignia existed), are probably commemorative insigna for service in the Freikorps.
Is the photo dated?
When this kind of wehrwolf arm band came into use?
regards,
Mario