A Put Butterfly is a strategy that combines multiple put at different strikes, all with the same expiration.
It profits if the underlying finishes near the middle strike.
How It Works
Buy 1 lower-strike put
Sell 2 middle-strike puts
Buy 1 higher-strike put
All options share the same expiration date.
Profit and Loss Profile
Maximum Profit: When the underlying finishes at the middle strike at expiration; profit equals the peak payoff minus net cost.
Maximum Loss: Limited to the net premium paid.
Breakeven: Two prices define breakeven around the middle strike.
Why Traders Use It
To capitalize on a neutral to slightly bearish view with tight risk limits.
When expecting low volatility and a high chance the price ends near the target.
As a cost-effective structure for defined-risk bets on range-bound outcomes.