LONG PUT BUTTERFLY
Overview
Buy a higher-strike put, sell two middle-strike puts, and buy a lower-strike put — same expiration with equal wing widths. Identical payoff to a call butterfly but constructed with puts. Maximum profit occurs when the stock finishes exactly at the middle strike at expiration.
What it does
Functionally identical to a long call butterfly in terms of payoff — built with puts instead. The put version can sometimes be cheaper to enter due to volatility skew (puts are often priced higher than calls). You're expressing a neutral view: the stock should finish near the middle (short) strike at expiration, with strictly defined risk equal to the debit paid.
Structure
buy 1 put + sell 2 puts + buy 1 put
Setup
- 1.Buy 1 Put at the upper wing strike.
- 2.Sell 2 Puts at the middle strike.
- 3.Buy 1 Put at the lower wing strike.
- 4.Equal distance between strikes; same expiration.
Max profit
(Wing Width − Net Debit) × 100. E.g., MSFT: ($5 − $0.60) × 100 = $440. Achieved if MSFT closes at $335.
Max loss
Net Debit Paid. E.g., $0.60 × 100 = $60.
Breakeven
Lower Strike + Net Debit and Upper Strike − Net Debit. E.g., $330.60 and $339.40.
When to use
When you expect the stock to finish near a specific price and want a low-cost, fully defined-risk position.
When to avoid
When elevated volatility is expected — butterfly spreads need the stock to stay still.
Example trade
Stock: MSFT at $335 Buy 1 MSFT $340 Put Sell 2 MSFT $335 Puts Buy 1 MSFT $330 Put Net Debit: $0.60 ($60) Expiration: 21 days Max Profit: ($5 - $0.60) × 100 = $440 (if MSFT pins at $335) Max Loss: $60 (the debit paid) BreakevenS: $339.40 and $330.60
Common mistakes
- ×Not comparing call vs. put butterfly pricing — sometimes puts are cheaper due to skew, sometimes calls are.
- ×Choosing wings too narrow — the profit zone becomes very small.
- ×Entering too early before expiration — most value is captured in the final 2 weeks.
- ×Not accounting for early assignment risk on the short puts if they go deep ITM.
- ×Forgetting that max profit requires a near-perfect pin — the expected value of the trade includes many small losses.
FAQ
Why choose a put butterfly over a call butterfly?
Sometimes put skew creates pricing differences that make one version cheaper. Compare the two at entry and choose the cheaper version.
Can I lose more than the debit paid on a put butterfly?
No — the wings always protect you. Maximum loss is exactly the net debit paid.