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

Short Put Butterfly (Unbalanced)

Strategy: Sell x ITM Puts, 14 DTE

Buy x + y ATM Puts, Same Expiry

Sell y OTM Puts, Same Expiry

(Same Width Between Strikes)


Price Chart: Uptrending

Current IV%: 50%

IV Rank: 50

Trade: Sell x ITM put options; buy x + y ATM put options; sell y OTM put options, same strike widths. Also recall how short butterflies are less popular than long butterflies, where long designates either long call or long put butterfly wings.

Typical Strike Deltas:

Lower Short Puts 0.45 to 0.40

Central Long Puts 0.45 to 0.50

Higher Short 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: This defined-risk bullish butterfly strategy can be structured to fit either bearish or bullish bias by reversing the number of option contracts sold in the wings. The example is bullish. (A bearish bias sells more OTM puts below than OTM puts above, which changes the risk graph accordingly.)

Manage: Close the butterfly for profit as soon as the price of the underlying exceeds $332. If the price experiences a drop rather than a rally, close the trade to recover the premium that remains in the 10 long call options.

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

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