Short Put Butterfly

Two puts bought at the middle strike against one sold above and one below: a credit structure that keeps the credit when the underlying finishes outside the wings.

Also called Reverse put butterfly

Outlook

Volatility

Family

Ratio

Level

Advanced

Legs

3 legs

Expirations

1 expiration

Opens for

Credit

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	Long	Put 100	2	At the money
A	Short	Put 95	1	5.00 points further out of the money than B
C	Short	Put 105	1	5.00 points further in the money than B

What it is

A put butterfly reversed: one put sold at C, two bought at B, one sold at A, evenly spaced in one expiration. It opens for a credit kept in full outside the wings.

By put-call parity it is the same position as a short call butterfly at the same strikes.

The payoff

At expiration

An inverted narrow tent: flat at the full credit on both sides, falling to a trough at the middle strike B.

• Above C and below A — everything cancels and the credit is kept.
• At B — the worst case: (C − B) less the credit.
• Between the strikes — the position slides between the two.

How it behaves before expiration

Today, before expiration

Today's value is an almost flat line above the inverted tent.

Nearly flat until the final days, when the trough at B appears.

The Greeks

Delta is small and changes sign at B. Gamma is positive at B. Theta is negative near B. Vega is positive near B. The values match the call version at the same strikes.

Where it lives in the volatility environment

The same as the call version. The practical difference is assignment: the short legs are puts, so early exercise follows interest rates and moneyness rather than dividends.

What can go wrong

• The worst case is at the money, which is where the underlying usually is when the structure is opened.
• Two short puts on opposite sides of the body, each assignable.
• Assignment leaves long shares against a two-contract long put position.
• Six crossings on a modest credit.
• The wings must stay equidistant for the structure to behave as described.

Building it in Option Panel

Open Build Strategy and pick Short Put Butterfly. Body strike first, wings as offsets from it.

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

Related strategies

• Put Butterfly — the other side.
• Short Call Butterfly — the same position built from calls.
• Inverse Iron Butterfly — the same view as a debit structure.