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Short Put Butterfly
bearishShort Put Butterfly is a range bound strategy that offers decent reward/risk along with low cost
Example:
| Instrument | Qty | Price |
|---|---|---|
| BUY NIFTY 30-Jun-26 22600 PE | 65 | 1.85 |
| SELL NIFTY 30-Jun-26 24100 PE | 130 | 108.2 |
| BUY NIFTY 30-Jun-26 25600 PE | 65 | 1517.9 |
When To Execute?
Long Put Butterfly is recommended when the trader is looking to execute a potentially high-yielding trade at very low cost, where your maximum profits occur if the stock is at the middle strike price at expiration. One is anticipating very low volatility in the stock price. In scanraio where strike diffence is not equal it is known as Modifien Put Butterfly Spread
Trade
Buy 1 lot ITM Put, Sell 2 lots ATM Puts and Buy 1 lot OTM Put
Advantages
It helps to participate in high yielding trade with relatively low cost. By being completely hedge one can hold to the short position till expiry. Promising Reward to risk provides good odds to wins as stock has ample room to fall.
Disadvantages
Time decay is generally harmful when stock is near first strike or third strike and beneficial if stock price is near middle strike. Maximum loss is capped. Strike selection is a key to garner maximum benefit.
Maximum Profit
This is a net debit trade, although the net cost is typically low. Maximum risk is the net debit of the bought and sold options. Maximum reward is the difference between adjacent strike prices less the net debit. (Strikes are equip-distance from each other).
Maximum Loss
It is Net debit Strategy. However Net cost to establish is very low