Long Put Butterfly (Unbalanced) – The Option Strategy Desk Reference

Long Put Butterfly (Unbalanced)

Strategy: Buy x ITM Puts, 14 DTE

Sell x + y ATM Puts, Same Expiry

Buy y OTM Puts, Same Expiry

(Same Width Between Strikes)


Price Chart: Uptrending

Current IV%: 50%

IV Rank: 50

Trade: Buy x ITM put options; sell x + y ATM put options; buy y OTM put options, same strike widths

Typical Strike Deltas:

Lower Long Puts 0.45 to 0.47

Central Short Puts 0.48 to 0.50

Higher Long Puts 0.50 to 0.55

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: It is possible to structure this defined-risk bullish butterfly to fit either a bearish or bullish bias. The example is bullish. (A bearish bias buys more ITM puts above than OTM puts below, which changes the risk graph accordingly.) Unbalanced and broken wing butterflies increase both profit potential and risk, which always go hand in hand.

Manage: Close the butterfly for profit if and when the price of the underlying is in the bottom one-third of the peak of the risk profile’s plotline, that is, the peak of the witch’s hat. If the price experiences a drop rather than a rally, sell the long puts and keep the short puts. The short puts can either be closed for a profit or allowed to expire worthless.

Profit: Close when this trade returns a profit of 15 to 20 percent.

Loss: This trade experiences a limited loss of rarely more than 25 percent when properly configured. DO NOT PERMIT OPTIONS TO EXPIRE ITM!