Build a Short Put Butterfly Strategy

What is a short put butterfly?

DirectionalLimited ProfitLimited Loss

A short put butterfly is a volatility strategy that can be profitable if there is a big move in either direction. It is the opposite of a long put butterfly.

Increasing volatility or a big move is required for this strategy to become profitable. Time is harmful when the position is unprofitable, but helpful once it becomes profitable.

ABCProfitLossStock Price
  • Sell a put at strike A
  • Buy two puts at strike B
  • Sell a put at strike C