Short Put Butterfly Calculator

Short Put Butterfly at a glance

How a short put butterfly works

Flip a long put butterfly and you have the short put butterfly. The two outer puts you sell, one in the money and one out of the money, are together worth more than the two at the money puts you buy, so the trade opens for a credit. That credit is the best case. Each short put is paired with a long put, so losses are capped and no naked margin is needed. The bet is simple: the stock will not stay near today's price through expiration.

At expiration, the payoff is a valley. Above the upper strike, all four puts expire worthless and you keep the credit. Below the lower strike, the two long puts offset the two short puts dollar for dollar and you again keep the credit. In between, the position loses, bottoming out at the middle strike, where the loss equals the wing width minus the credit. Each breakeven sits one credit inside the outer strikes, so the stock needs to travel most of a wing to reach profit.

Before expiration, the short put butterfly is long gamma and long vega around the middle strike, so it benefits from sharp moves and from rising implied volatility, which often show up together in a selloff. Time decay is the cost of waiting. Because the short wings keep time value until late in the cycle, the position rarely shows its full credit early, even after a big move, so traders weigh taking a partial gain against holding through expiration.

Short 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 sell 1 105 put (32 days) at $6.45, buy 2 100 puts (32 days) at $3.39, sell 1 95 put (32 days) at $1.43. That is a net credit of $110. At expiration a maximum profit of $110 and a maximum loss of $390, with breakevens at $96.10 and $103.90. The lognormal chance of profit is 66%.

These are theoretical American option prices from the Bjerksund and Stensland model, not live quotes. Load any ticker in the short put butterfly calculator above to run the same math on real market prices.

When to use a short put butterfly

• You expect a sharp move away from the current price in either direction and want limited risk.
• Implied volatility is low and you expect it to rise.
• Puts offer better pricing than calls for the same reverse butterfly.
• You want to avoid the dividend driven early assignment that affects short calls.

Max profit, max loss and breakeven

Maximum profit

Net credit × 100. It is kept if the stock closes at or above the upper strike or at or below the lower strike at expiration.

Maximum loss

(Upper strike minus middle strike minus net credit) × 100. It occurs if the stock closes exactly at the middle strike at expiration.

Breakeven

Upper breakeven = upper strike minus net credit. Lower breakeven = lower strike plus net credit.

Short Put Butterfly Greeks

• Delta: Near zero at the middle strike. It becomes negative as the stock falls and positive as it rises, so the position profits as the move extends.
• Gamma: Positive around the middle strike from the two long puts, turning negative near the short wings.
• Theta: Negative near the center, because the long at the money puts decay fastest. It can turn positive once the stock has moved out past a wing.
• Vega: Positive near the center, so a rise in implied volatility helps. Vega shrinks and can turn negative as the stock reaches a wing.

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

The upper short put begins two strikes in the money, which makes it the leg most exposed to early assignment. If the stock falls further, that put becomes deep in the money, its time value fades, and holders may exercise early, especially when interest rates are high. Assignment leaves you long 100 shares bought at the upper strike, while you still hold two long puts and the short lower put. The long puts protect the shares, so your risk stays capped, but the stock position ties up capital until you close it.

If the stock collapses below the lower strike, both short puts are deep in the money and both may be assigned, giving you 200 shares that your two long puts fully offset. You can exercise the long puts to sell the shares or close everything together. Because put holders tend to wait until after an ex dividend date, dividends rarely trigger assignment here. At expiration, watch for pin risk near the upper or lower strike, where assignment on the short put at that strike is uncertain while the other legs settle predictably.

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

How to manage a short put butterfly

• Enter all four legs as one combination order at a limit price to protect the small credit.
• Close when the stock has moved well beyond a breakeven and the remaining profit is not worth the remaining risk.
• If the upper short put is assigned early, sell the shares or exercise one long put, then reassess the remaining legs.
• Avoid holding into the final day with the stock sitting near any strike.

Short Put Butterfly FAQ

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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.