Short Put Butterfly
Expecting a significant move away from the middle strike in either direction — profits from movement, identical in payoff to the short call butterfly but constructed with puts
Risk Profile at a Glance
How to Construct the Short Put Butterfly
- 1.Sell 1 put at strike C (higher)
- 2.Buy 2 puts at strike B (middle)
- 3.Sell 1 put at strike A (lower)
- 4.All same expiration, equally spaced strikes
- 5.Net credit
Understanding the Short Put Butterfly
The short put butterfly is the put-based version of the short call butterfly. It collects a small credit and profits if the stock moves far enough away from the middle strike by expiration. Maximum profit is the credit received; maximum loss is the spread width minus the credit when the stock pins at the middle strike. By put-call parity, the short put butterfly and short call butterfly have equivalent profit and loss profiles, so traders choose based on liquidity and market conditions.
Like the short call butterfly, this strategy benefits from volatility and movement — it is the opposite of the long butterfly. Advanced traders use short butterflies around known events (earnings, FOMC) when they expect a large move but are uncertain of direction. The credit received is small, which limits attractiveness compared to simply buying a strangle. Active management is important because the maximum loss zone (near the middle strike) can be breached rapidly on a dull day..
When to Use It — EdgeOS Signal Integration
- ✓Use when a bull or bear count approaches 9 — exhaustion signals a large pending move
- ✓Tight extension score (below 0.4) after a long consolidation — breakout imminent
- ✓High VIX with low IV term structure suggests realized volatility may exceed implied
Compare with Similar Strategies
Other Butterflies Strategies
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Frequently Asked Questions
What is the Short Put Butterfly options strategy?
The short put butterfly is the put-based version of the short call butterfly. It collects a small credit and profits if the stock moves far enough away from the middle strike by expiration.
When should I use the Short Put Butterfly?
Expecting a significant move away from the middle strike in either direction — profits from movement, identical in payoff to the short call butterfly but constructed with puts
What is the maximum loss on the Short Put Butterfly?
The maximum loss is fully defined at entry: the net debit paid (for debit strategies) or the spread width minus the credit received (for credit spreads). You can never lose more than this amount.
How does the Short Put Butterfly compare to similar strategies?
The Short Put Butterfly is a directional credit strategy. Compared to the Long Put Butterfly (neutral, debit), the Short Put Butterfly has limited max risk and limited max reward. Your choice depends on your directional bias, IV environment, and risk tolerance. The TraderValue strategy comparison tool lets you see the exact payoff differences side by side.