Put Butterfly Strategy
Buy 1 high put, sell 2 middle puts, buy 1 low put. Profit if stock lands at middle strike.
What is a Put Butterfly?
A Put Butterfly mirrors the Call Butterfly using puts. Three strikes: buy 1 higher-strike put, sell 2 middle-strike puts, buy 1 lower-strike put. Low-cost bet on stock ending at middle strike. Used for bearish-to-neutral targeting.
When to Use a Put Butterfly
Similar to call butterfly but when you expect a drop to a specific level. Lottery-ticket payoff with low cost.
Key Formulas
- Max Profit
- (Upper - Middle strike - Net debit) × lot size
- Max Loss
- Net debit × lot size
- Breakeven
- Lower + net debit / Upper - net debit
Example Trades
Buy 1 SPY $420 Put, Sell 2 $415 Puts, Buy 1 $410 Put for $1 debit. Max profit $400 at $415.
Buy 1 SENSEX 80500 Put, Sell 2 80000 Puts, Buy 1 79500 Put for ₹50 net debit. Max profit ₹9,000 (× 20) if SENSEX pins 80000.
Common Mistakes to Avoid
- Stocks rarely pin exactly
- Need patience until expiration
- Wide wings reduce profit potential
- Close attention to gamma at expiration
Related Strategies
Put Butterfly FAQ
What is a Put Butterfly?
A Put Butterfly mirrors the Call Butterfly using puts. Three strikes: buy 1 higher-strike put, sell 2 middle-strike puts, buy 1 lower-strike put. Low-cost bet on stock ending at middle strike. Used for bearish-to-neutral targeting.
When should I use a Put Butterfly?
Similar to call butterfly but when you expect a drop to a specific level. Lottery-ticket payoff with low cost.
What is the maximum profit and loss for a Put Butterfly?
Max profit: (Upper - Middle strike - Net debit) × lot size. Max loss: Net debit × lot size.
What is the breakeven price for a Put Butterfly?
Breakeven: Lower + net debit / Upper - net debit. US example: Buy 1 SPY $420 Put, Sell 2 $415 Puts, Buy 1 $410 Put for $1 debit. Max profit $400 at $415. Indian-index example: Buy 1 SENSEX 80500 Put, Sell 2 80000 Puts, Buy 1 79500 Put for ₹50 net debit. Max profit ₹9,000 (× 20) if SENSEX pins 80000.
What are common mistakes when trading a Put Butterfly?
Common mistakes include: Stocks rarely pin exactly; Need patience until expiration; Wide wings reduce profit potential; Close attention to gamma at expiration.
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