Long Put Butterfly
Buy one higher put, sell two middle puts, buy one lower put. A neutral strategy that profits when the stock stays near the middle strike.
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What is a Long Put Butterfly?
A long put butterfly uses all put options to create the same payoff profile as a long call butterfly. You buy one put at a higher strike, sell two puts at a middle strike, and buy one put at a lower strike. All options share the same expiration with evenly spaced strikes.
The payoff diagram looks identical to a call butterfly — maximum profit when the stock closes at the middle strike, maximum loss beyond either wing. The choice between call and put butterflies usually comes down to pricing efficiency. Sometimes the put version offers a slightly better entry due to skew differences.
How to Set It Up
- Buy 1 put at the upper strike
- Sell 2 puts at the middle strike
- Buy 1 put at the lower strike
- Same expiration for all legs
- Equal spacing between strikes
- Strike selection: Center the middle strike at your target price. Use 2.5 or 5-point wide wings depending on the stock price.
- Expiration: 2-4 weeks out is common. The closer to expiration, the more the butterfly expands in value if the stock is near the center.
The net debit is small, making this a capital-efficient trade.
When to Use This Strategy
Use a long put butterfly when:
- You expect the stock to settle near a specific price
- Volatility is low and you do not expect a big move
- The put version prices better than the call version due to skew
- You want a low-cost, low-risk directional or neutral trade
- You are looking for an alternative to iron butterflies
Put butterflies can sometimes be easier to execute because the bid-ask spread on puts may be tighter at certain strikes, particularly when put skew is steep.
Example Trade
Stock XYZ is trading at $100. You expect it to stay near $100.
- Buy 1 XYZ $105 put for $6.50
- Sell 2 XYZ $100 puts for $3.50 each ($7.00 total)
- Buy 1 XYZ $95 put for $1.50
- Net debit: $6.50 - $7.00 + $1.50 = $1.00 ($100 total)
- Max profit: ($5 - $1) x 100 = $400
- Max loss: $100
At expiration with XYZ at $100: The $105 put is worth $5, the two $100 puts are worthless, and the $95 put is worthless. Net value: $500 - $100 cost = $400 profit.
At expiration with XYZ at $92: The $105 put is worth $13, the two $100 puts cost you $16, and the $95 put is worth $3. Net value: $13 - $16 + $3 = $0. You lose the $100 debit.
At expiration with XYZ at $110: All puts expire worthless. You lose the $100 debit.
Risk and Reward
- Max profit: (Wing width - net debit) x 100. $400 in our example. Occurs when the stock closes exactly at the middle strike.
- Max loss: Net debit paid. $100. Occurs when the stock moves past either wing.
- Breakeven: Two points. Upper strike minus debit ($104) and lower strike plus debit ($96).
The risk-reward ratio is identical to a call butterfly with the same strikes. The difference is only in execution and pricing.
Tips and Common Mistakes
- Compare pricing to the call butterfly. Whichever version is cheaper is the better trade. They have the same payoff at expiration.
- Watch for early assignment risk. Deep ITM short puts can be assigned early, especially near ex-dividend dates.
- Do not hold to expiration unless you are prepared to manage assignment. Close the trade a few days before expiration.
- Start with wider wings if you are unsure of your target. A wider butterfly costs more but has a bigger profit zone.
Related Strategies
- Long Call Butterfly — same payoff profile using calls
- Iron Butterfly — credit version using both puts and calls
- Long Straddle — the opposite bet, expecting a big move
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