Put Butterfly

Two puts sold at the middle strike against one bought above and one below, evenly spaced: a debit structure whose gain peaks if the underlying finishes at the middle strike.

Also called Long put butterfly, Put fly

Outlook

Neutral

Family

Ratio

Level

Advanced

Legs

3 legs

Expirations

1 expiration

Opens for

Debit

Maximum profit

Limited

Maximum loss

Limited

Legs at the reference strikes this page's diagrams are drawn from

Leg	Side	Contract	Ratio	How the strike is chosen
B	Short	Put 100	2	At the money
A	Long	Put 95	1	5.00 points further out of the money than B
C	Long	Put 105	1	5.00 points further in the money than B

What it is

Three evenly spaced strikes, all puts, one expiration: one bought at C above, two sold at B, one bought at A below. The 1–2–1 ratio and the even spacing are what define it.

The payoff is the same tent as a call butterfly at the same strikes. By put-call parity the two are the same position; which one is used is a question of which strikes have the better markets and which side carries less assignment risk.

The payoff

At expiration

A narrow tent: flat at a small loss on both sides, rising to a peak at the middle strike B.

• Above C — everything expires worthless and the debit is lost.
• Between B and C — the long put at C is in the money and the position climbs.
• At B — the maximum: (C − B) less the debit.
• Between A and B — the two short puts are in the money and give back the gain at twice the rate.
• Below A — the long put at A catches the second short one, and the loss is fixed at the debit.

How it behaves before expiration

Today, before expiration

Today's value is an almost flat line far below the tent's peak.

As with the call version, the structure is nearly flat until the final days. The peak is a late arrival, and an early judgement of the position will usually be a judgement of nothing.

The Greeks

Delta is small and changes sign at B. Gamma is negative at B and positive at the wings. Theta is positive near B and negative near a wing. Vega is negative near B.

The values are those of the call butterfly at the same strikes, which is the practical consequence of the two being the same position.

Where it lives in the volatility environment

The same considerations as the call butterfly apply. The one thing that differs between the two in practice is assignment: the short legs here are puts, so early exercise is driven by interest rates and deep moneyness rather than by dividends.

What can go wrong

• The peak is one price, and the descent from B to A is twice the slope of the climb from C to B.
• Early assignment on a short put leaves long shares, and two contracts sit at B.
• Most of the value arrives at the end, so the structure rewards patience and punishes an early read.
• Six crossings on a small debit.
• Uneven spacing makes it a different structure — see put broken wing.

Building it in Option Panel

Open Build Strategy and pick Put Butterfly. The body strike is chosen first and the wings are offsets from it; the 2:1 body ratio is part of the definition.

Back to the encyclopaedia · What-if analysis in the docs

Related strategies

• Call Butterfly — the same position built from calls.
• Iron Butterfly — the same shape inverted, for a credit.
• Put Broken Wing — one wing moved out, which changes the cost and the risk.