Short Put Butterfly.
Description
The Short Put Butterfly is identical to the Short Call Butterfly, except that it uses puts
instead of calls. It is the opposite of a Long Put Butterfly, which is a rangebound
strategy. The reason that short butterflies arent particularly popular is because even
though they produce a net credit, they offer very small returns compared with strad-
dles and strangles with only slightly less risk.
The Short Put Butterfly involves a low strike short put, two ATM long puts, and
an ITM short put. The resulting position is profitable in the event of a big move by
the stock. The problem is that the reward is seriously capped and is typically
dwarfed by the potential risk if the stock fails to move.
P/L Profile
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