2-Step Long Put Butterfly – The Option Strategy Desk Reference

2-Step Long Put Butterfly

Strategy: Combines Two Vertical Calls Entered at Different Times

Strategy: 1st Trade: Buy n ATM Puts, 21 DTE

Sell n OTM Puts, Same Expiry

2nd Trade: Sell n OTM Puts (Same Strike As 1st Short Puts),
14 DTE

Buy n OTM Puts, Lower Strike to Create a Butterfly, Same Expiry


Price Chart: Unwanted price reversal (drop) when using a bull put

Current IV%: 50%

IV Rank: 50

Trade: Leg an existing bull put spread into a long put butterfly by buying n ATM put options and selling n OTM put options (a typical bear put vertical). An identical number of short puts is added at the same strike as that of the original short puts. The OTM long puts form the lower wing of the butterfly. Legging an existing bull put vertical into a long put butterfly is sometimes used to recover from a failing bull put vertical spread. Also, the initial bull put options must have ample time till expiration to permit the addition of the bear put.

Typical Strike Deltas:

Lower Short Puts 0.45 to 0.50

Central Long Puts 0.50 to 0.55

Higher Short Puts 0.55 to 0.60

NOTE: Long butterflies that include long wing options and short body options are more popular than short butterfly options. Short call and put butterflies are included for comparison purposes. (See the long call butterfly’s note and table for more information.)

Goals: When the price of the underlying begins to drop in opposition to the trader’s bullish bias, the trade may be rescued (or the potential loss reduced) by legging the bull put vertical into a long put butterfly. Legging into a long put butterfly is rational because this butterfly offers a defined risk. As shown by the plotline in the above-mentioned risk profile, this strategy can also return a small profit if the price of the underlying becomes close to $245.

Manage: Close the butterfly for profit if and when the price of the underlying is within a few dollars of $245, or close the trade when the options are within 5 days of expiring.

Profit: Close when this trade returns a small profit approaching 10 ­percent, which may be a “best case outcome.”

Loss: This trade’s maximum loss is limited to approximately $185. DO NOT PERMIT OPTIONS TO EXPIRE ITM!