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OPTIONS STRATEGIES·SHORT VOL·3 LEGS

Put butterfly

The put-side mirror of a call butterfly. Profit zone is centered on the middle put strike; max profit at pin, max loss is the small debit paid.

INPUTS
Underlying price
$
Centers the payoff chart and computes P&L at this price.
LEGS
Long upper put
Type
Side
Strike
$
Qty
Premium
$
Short middle puts
Type
Side
Strike
$
Qty
Premium
$
Long lower put
Type
Side
Strike
$
Qty
Premium
$
RESULT
BE $95.50BE $104.50spot $100.00
$60.003 strikes$140.00
P&L at current spot (expiry)
+$450
Net debit−$50
Max profit+$450
Max loss−$50
Breakevens$95.50 · $104.50
Risk / reward9.00 : 1
RISK PROFILE
Max profit
Wing width × 100 − net debit
Max loss
Net debit paid
Breakeven
Lower + (debit ÷ 100), Upper − (debit ÷ 100)
HOW IT WORKS

How a put butterfly works

A put butterfly buys one higher-strike put, sells two middle-strike puts, and buys one lower-strike put in the same expiry with equal spacing. It is the put-based construction of the same shape as a call butterfly, and its payoff at expiry is effectively identical.

The position is built from a bear put spread and a bull put spread sharing the two short middle-strike puts. That sharing is what makes the debit small — you are buying the wings and financing them almost entirely with the centre.

Because the profiles match, the choice between a put and a call butterfly is practical rather than strategic. Traders pick whichever chain has tighter markets at the strikes they want, and out-of-the-money puts are frequently more liquid than out-of-the-money calls on index products.

WORKED EXAMPLE

A worked example

XYZ trades at $100 and you expect it near $100 in 30 days. You buy the $105 put for $6.00, sell two $100 puts for $3.00 each, and buy the $95 put for $1.50.

Net debit
$6.00 − $6.00 + $1.50 = $1.50 × 100 = $150 (max loss)
Max profit
($5 wing − $1.50) × 100 = $350, at exactly $100
Breakevens
$96.50 and $103.50
At expiry, XYZ = $100
$105 put worth $5, two $100 puts worthless → +$350
At expiry, XYZ ≤ $95 or ≥ $105
All legs net to zero, −$150

Identical arithmetic to the call butterfly at the same strikes, which is the point. If the two versions ever price differently by more than the spread, that is a liquidity artefact rather than an opportunity.

FIT

When a put butterfly fits — and when it doesn't

Consider it when
  • You have a specific price target and the put chain is more liquid than the call chain at those strikes.
  • You want a defined-risk, high-ratio position on the stock finishing near a level.
  • You are trading an index product where out-of-the-money puts carry the tighter markets.
Think twice when
  • You expect a directional move of any size.
  • Four-leg execution costs are material relative to a debit this small.
  • You need a high probability of profit — this structure is not built for one.
FAQ

Common questions

Is a put butterfly the same as a call butterfly?

At the same strikes and expiry the expiry payoff is effectively the same. The practical difference is liquidity and pricing on each chain, plus the early-assignment profile of the short puts.

What is the maximum profit?

(Wing width − net debit) × 100, at exactly the middle strike. A $95/$100/$105 put butterfly opened for $1.50 pays up to $350 per contract.

Why would I choose puts over calls?

Usually liquidity. On index products the out-of-the-money put chain often has tighter spreads, and on a four-leg position the spread you cross matters as much as the strikes you choose.

Can I be assigned early on the short puts?

Yes, particularly if they move deep in the money. The long wings still cap the risk, but assignment leaves you long shares and is usually best resolved by closing the whole structure.

RELATED STRATEGIES
Call butterfly
Pin risk · Long 1 / Short 2 / Long 1 across three call strikes.
Iron butterfly
Short volatility · Pin risk play, max profit at the short strike.
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