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Long Put Butterfly
eitherwaysLong Put butterfly Strategy is a Volatility strategy. It is opposite to Short Put Butterfly. It offer lower reward for relatively higher risk
Example:
| Instrument | Qty | Price |
|---|---|---|
| SELL NIFTY 30-Jun-26 22600 PE | 65 | 1.85 |
| BUY NIFTY 30-Jun-26 24100 PE | 130 | 108.2 |
| SELL NIFTY 30-Jun-26 25600 PE | 65 | 1517.9 |
When To Execute?
Long 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 Long Put Butterfly.
Trade
Sell 1 lot ITM Put, Buy 2 lots ATM Put, Sell 1 lot deep OTM Put
Advantages
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
Disadvantages
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
Maximum Profit
It is the net credit strategy. Maximum Profit arrives if the stock closes above highest Put or below the first Put
Maximum Loss
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