Long Put Butterfly at a glance
| Construction | Buy 1 put two strikes above the current price, sell 2 at the money puts, and buy 1 put two strikes below, all in the front month expiration, for a net debit. |
|---|---|
| Outlook | Neutral |
| Volatility view | Wants falling IV |
| Max profit | (Upper strike minus middle strike minus net debit) × 100. |
| Max loss | Net debit × 100. |
| Breakeven | Upper breakeven = upper strike minus net debit. |
| Experience level | Intermediate |
| Also called | Put butterfly |
How a long put butterfly works
The long put butterfly is a bear put spread on the upper two strikes joined to a bull put spread on the lower two strikes, with the two short at the money puts shared between them. The upper long put is in the money at entry and the lower one is out of the money. Selling two middle puts pays for most of the wings, which keeps the debit small. Every short put is matched by a long put, so the maximum loss is known the moment you enter.
The expiration payoff is the same tent as a call butterfly with matching strikes. Above the upper strike all puts expire worthless and the debit is lost. As the stock falls from the upper strike toward the middle, the upper put gains and profit climbs to its peak at the middle strike, equal to the wing width minus the debit. Below the middle strike, the two short puts gain against you faster than the upper put gains for you, so profit falls back, and below the lower strike everything offsets to a loss of the debit.
Over most of its life the put butterfly moves slowly. A stock sitting right on the middle strike produces modest gains early, then faster gains as expiration nears and the short puts shed their remaining time value. A stock drifting toward either wing turns theta negative. A drop in implied volatility helps a centered put butterfly, while a spike, often triggered by a selloff, lowers its value. Downside skew makes the lower put relatively expensive in volatility terms, and that is reflected in the debit.
Long Put Butterfly example with real numbers
With the stock at $100, implied volatility at 30%, a 4.1% risk free rate and no dividend, you would buy 1 105 put (32 days) at $6.45, sell 2 100 puts (32 days) at $3.39, buy 1 95 put (32 days) at $1.43. That is a net debit of $110. At expiration a maximum profit of $390 and a maximum loss of $110, with breakevens at $96.10 and $103.90. The lognormal chance of profit is 34%.
These are theoretical American option prices from the Bjerksund and Stensland model, not live quotes. Load any ticker in the long put butterfly calculator above to run the same math on real market prices.
When to use a long put butterfly
- You expect the stock to finish near the current price and want defined risk.
- Puts offer a better net price or tighter quotes than the equivalent call butterfly.
- You want to avoid dividend driven assignment on short calls around an ex dividend date.
- You want to center the tent below the current price to express a moderately bearish target.
Max profit, max loss and breakeven
Maximum profit
(Upper strike minus middle strike minus net debit) × 100. It is earned only if the stock closes exactly at the middle strike at expiration.
Maximum loss
Net debit × 100. It occurs if the stock closes at or above the upper strike or at or below the lower strike at expiration.
Breakeven
Upper breakeven = upper strike minus net debit. Lower breakeven = lower strike plus net debit.
Long Put Butterfly Greeks
- Delta: Near zero when the stock is at the middle strike, positive below it and negative above it, so the position leans back toward the center.
- Gamma: Negative around the middle strike because of the two short puts, and positive near the wings.
- Theta: Positive while the stock stays near the middle strike, accelerating in the final days, and negative if the stock moves out toward a wing.
- Vega: Negative near the center. A volatility spike reduces the value of a centered put butterfly.
See the live numbers for your position in the Greeks tab of the calculator, or explore a single option in the options Greeks calculator.
Early exercise and assignment risk
Early assignment in a put butterfly comes from the short puts, and it is driven by interest rather than dividends. If the stock falls well below the middle strike, the two short puts become deep in the money and their time value can shrink to nearly zero, at which point holders may exercise to collect the strike price now, a choice that grows more attractive when interest rates are high. Assignment leaves you long 100 or 200 shares bought at the middle strike. Your long puts protect those shares, but the purchase can strain buying power.
Dividends affect the put version in the opposite way from calls. Because the stock is expected to drop by the dividend on the ex date, put holders are less likely to exercise just before it, so a put butterfly usually avoids the dividend assignment that can hit a call butterfly. Pin risk still applies at expiration: with the stock near the middle strike, the upper put will be exercised automatically while assignment on the short puts is uncertain, which can leave you long, flat or short shares the next session. Closing on expiration day removes that uncertainty.
The calculator's Early exercise risk tab flags short legs that are likely to be assigned. For a single option, use the early exercise calculator or read how early exercise and assignment work.
Pros and cons
Pros
- Defined risk with a small debit and a high payoff if the stock lands near the middle strike.
- Avoids most dividend related assignment risk because the short legs are puts.
- Benefits from time decay and falling implied volatility while centered.
- Every short put is covered by a long put, so the debit is the full capital at risk.
Cons
- Narrow profit zone and a maximum profit that requires a precise finish.
- Deep in the money short puts can be assigned early after a sharp decline.
- Four contracts across three strikes increase trading costs.
- Gains come slowly until the final weeks before expiration.
How to manage a long put butterfly
- Price the put and call versions with the same strikes and use whichever costs less for the same payoff.
- Close or roll when the stock moves beyond a breakeven with plenty of time left, since recovery requires a reversal.
- If a short put is assigned, sell the shares and keep the remaining puts, or exercise the upper put to offset them.
- Exit before the final minutes of expiration day to avoid pin risk around the middle strike.
Long Put Butterfly FAQ
How does a long put butterfly make money?
A long put butterfly makes money when the stock finishes between its two breakevens, with the most profit at the middle strike. The two short puts lose value faster than the wings as time passes, so the spread gains as expiration approaches with the stock near the center.
Is a put butterfly the same as a call butterfly?
At expiration, a put butterfly and a call butterfly with the same three strikes have identical payoffs. Before expiration their prices can differ slightly because of dividends, interest rates, skew and the early exercise premium in American options. Comparing both in the calculator shows which is cheaper.
What is the early assignment risk in a long put butterfly?
The early assignment risk in a long put butterfly sits with the two short puts and rises when the stock falls well below the middle strike and their time value disappears. Assignment gives you long shares, but your long puts cap the downside, so the overall risk stays defined. The cost is the capital needed to hold the shares until you close them.
When do traders close a long put butterfly?
Traders commonly close a long put butterfly before expiration day, either once it has gained a solid portion of its maximum value or once the stock breaks out beyond a breakeven. Holding to the last minute chases the peak of the tent but adds pin risk and assignment uncertainty around the middle strike.
Related strategies
Long Call Butterfly
A long call butterfly is a neutral, limited risk strategy built from three call strikes: buy one lower strike call, sell two middle strike calls and buy one higher strike call.
Iron Butterfly
An iron butterfly is a neutral, defined risk credit strategy that sells an at the money put and call and buys an out of the money put and call as protective wings.
Put Broken Wing Butterfly
A put broken wing butterfly is a moderately bearish, defined risk strategy that buys one at the money put, sells two lower strike puts and buys one put further below, with the lower wing wider than the upper wing.
Long Put Condor
A long put condor is a four leg debit spread built entirely with puts that profits when the stock finishes between the two middle strikes at expiration.
Educational tool, not financial advice. Calculations are theoretical and depend on your inputs; real fills, fees, early assignment and dividends can change results. Options involve risk and are not suitable for every investor.