Long PUT Butterfly

Long PUT Butterfly is a neutral outlook strategy. It can be visualized as a combination of bull put spread and bear put spread.

It is built by buying a lower strike PUT, selling 2 ATM PUTs & buying a higher strike PUT.

It is a popular positional strategy traded on the Index options closer to expiry.

Trade Set-Up


Buy 1 lower strike PUT

Naked Put-Finvezto

Sell 2 ATM PUTs

short put-Finvezto

Buy 1 higher strike PUT

Naked Put-Finvezto

Long PUT Butterfly


Entry Checklist

Market Outlook
  • When you have a neutral outlook and expect the price to stay in a tight range.
  • Volatility
  • Initiate the strategy when the implied volatility levels are neither moving up or down and quite stable
  • Risk Profile

    Risk [Loss]
  • Maximum Loss is limited to the net debit paid
  • Reward [Profit]
  • Maximum profit is when the price ends at the strike price of 2 ATM PUTs that you sold.
  • Break Even Point
  • Lowest Strike Price plus net debit paid
  • Highest Strike Price minus the net debit paid
  • Options Greeks Impact

    Time Decay Impact [Theta]
  • Time decay is helpful for the position as long as price stays closer to the ATM PUT
  • Volatility impact [Vega]
  • When the price is closer to the ATM sold PUT then you want the volatility to decrease
  • When price is closer to the bought PUTs then you want the volatility to increase
  • Trade Management & Exit

    Stop Loss & Exit
  • The strategy is highly profitable closer to the expiry. The risk reward is very high closer to expiry. You can hold the position and not worry about stop loss as this position already comes with low risk.
  • Set up the position such that you are willing to forego the entire net debit. The net debit paid should be 1-2% of your capital.