Short Put Butterfly option strategy
Short Put butterfly Strategy is a Volatility strategy. It is opposite to Long Put Butterfly. It offer lower reward for relatively higher risk.
Payoff at expiry
Nifty, lot size 65 · Nifty future 22,946 · 19 Oct 2026Legs
| Action | Option | Strike | Lots | Qty | Premium |
|---|---|---|---|---|---|
| SELL | OTM Put | 22,900 | 1 | 65 | ₹82.50 |
| BUY | ATM Put | 22,950 | 2 | 130 | ₹106.01 |
| SELL | ITM Put | 23,000 | 1 | 65 | ₹133.33 |
How it works
- Sell 1 OTM put at the 22,900 strike for ₹82.50, collecting the premium.
- Buy 2 ATM puts at the 22,950 strike for ₹106.01 each, paying the premium.
- Sell 1 ITM put at the 23,000 strike for ₹133.33, collecting the premium.
- You receive a net ₹248 upfront for the position. This is the most you can make.
Below 22,904 you profit, up to ₹248.
Between 22,904 and 23,004 you lose, up to ₹2,747.
Above 23,004 you profit, up to ₹248.
Set-up: Sell 1 lot ITM Put, Buy 2 lots ATM Put, Sell 1 lot deep OTM Put.
What happens if Nifty moves
Profit or loss at expiry| Nifty at expiry | Move | Profit / loss |
|---|---|---|
| 21,550 | −6% | +₹248 |
| 22,250 | −3% | +₹248 |
| 22,700 | −1% | +₹248 |
| 22,950 | Unchanged | −₹3,002 |
| 23,200 | +1% | +₹248 |
| 23,650 | +3% | +₹248 |
| 24,300 | +6% | +₹248 |
How the Greeks affect it
When to use
Short Put Butterfly is a volatility strategy that expects big move in underlying to make money.In scenario where strike difference is not equal it is known as Modified Short Put Butterfly.
- Idle for the stock that is range bound for the long time and is expected to give breakout/ breakdown. It is net credit strategy with defined reward to risk.
Things to watch
- Time decay could be beneficial if the stock is near the extremes and can hurt if the stock expires near middle strike. 2.Higher profit potential comes only near expiration.
Short Put Butterfly: questions
What is a Short Put Butterfly strategy?
Short Put butterfly Strategy is a Volatility strategy. It is opposite to Long Put Butterfly. It offer lower reward for relatively higher risk.
When should you use a Short Put Butterfly?
Short Put Butterfly is a volatility strategy that expects big move in underlying to make money.In scenario where strike difference is not equal it is known as Modified Short Put Butterfly.
How do you set up a Short Put Butterfly?
Sell 1 lot ITM Put, Buy 2 lots ATM Put, Sell 1 lot deep OTM Put.
What is the maximum profit of a Short Put Butterfly?
It is the net credit strategy. Maximum Profit arrives if the stock closes above highest Put or below the first Put.
What is the maximum loss of a Short Put Butterfly?
Maximum Loss occurs if the stock fails to give any momentum and expires near ATM strike Puts. Maximum loss is difference between first and second Put less net credit received.
What is the breakeven of a Short Put Butterfly?
With Nifty at 22,946, the example on this page breaks even at 22,904 and 23,004 at expiry.