Long Put
Butterfly

What is a long put butterfly?

A long put butterfly is a neutral, defined-risk options strategy built entirely from put options at three evenly spaced strikes. You buy one higher-strike put, sell two middle-strike puts, and buy one lower-strike put — all in the same expiry. The result is a cheap “tent” payoff that peaks if the underlying finishes exactly at the middle strike and tapers to a small fixed loss on either side.

Because the two sold puts finance most of the cost of the two bought puts, the net outlay is small — and that premium debit is the absolute most you can lose. It is the put-based twin of the long call butterfly, and traders reach for it when they expect the index or stock to sit quietly near a known level into expiry.

Key takeaways

• A long put butterfly is a neutral, range-bound bet — you want the underlying to settle near the middle strike.
• It is defined-risk: the most you can lose is the small net debit paid to open it.
• Maximum profit comes only if the price pins the middle strike at expiry.
• The trade has two breakevens, one on each side of the centre, with a profit zone between them.
• It benefits from time decay and falling volatility once the price is near the middle strike.

How it works

The structure is three legs at equal strike spacing — say strikes A (low), B (middle) and C (high). You buy 1 put at C, sell 2 puts at B, and buy 1 put at A. The two short middle puts bring in premium that offsets the two long wings, leaving a modest net debit. The body and wings together cap risk on both ends, so unlike a naked sale there is no open-ended exposure and the SPAN + exposure margin blocked is light relative to outright option selling.

At expiry the payoff is a tent: worthless wings far from the centre cost you only the debit, while value builds as the price approaches B and maxes out exactly at B. Between the body and the wing strikes, theta works for you as the short puts decay faster than the long ones, and a drop in implied volatility helps once the price sits inside the profit zone. For NIFTY and Bank Nifty the legs are cash-settled; for single stocks, watch the assignment and physical-settlement rules near expiry.

The numbers that matter

Worked NIFTY example

Suppose NIFTY is near 22,500 and you expect it to drift quietly into weekly expiry. You build a butterfly around 22,500: buy the 22,700 put, sell two 22,500 puts, and buy the 22,300 put. The net debit works out to about ₹60. With a lot size of 75, that costs ₹60 × 75 = ₹4,500 (illustrative figures):

• Wing width: 200 points; max profit = (200 − 60) × 75 = ₹10,500 at 22,500.
• Max loss: ₹4,500, capped, if NIFTY closes at or below 22,300 or at or above 22,700.
• Breakevens: 22,360 and 22,640.

NIFTY at expiry	Outcome	P&L (1 lot)
22,300 or below	All puts net to debit	−₹4,500
22,360 (breakeven)	Profit zone starts	₹0
22,500 (centre)	Peak of the tent	+₹10,500
22,640 (breakeven)	Profit zone ends	₹0
22,700 or above	All puts expire worthless	−₹4,500

The appeal is the ratio: you risk ₹4,500 for a peak of ₹10,500 if the index sits still. The catch is that the bullseye is narrow — you only collect the full payoff if NIFTY lands right on 22,500.

When to use a long put butterfly

• You are neutral and expect the underlying to settle near a specific level by expiry.
• Implied volatility is moderate-to-high, making the short body puts richer and the structure cheaper.
• You want a cheap, defined-risk way to express a pinning view rather than selling a naked straddle.
• There is little time to expiry, so the tent has sharpened and decay favours the short body.

Risks to respect

• Narrow profit peak: the full reward needs the price to pin the middle strike; small misses cut the payoff sharply.
• Trend risk: a strong move in either direction past a wing leaves you with the full (small) loss.
• Pin and assignment risk: on single stocks, a close right at the body can create early or partial assignment surprises.
• Execution drag: four legs mean more brokerage and slippage — wide bid-ask spreads can eat the thin debit.

Long put butterfly vs long call butterfly

The long call butterfly builds the same tent from calls instead of puts, and the two produce a near-identical payoff around the middle strike. The choice is practical, not directional: traders pick whichever set of strikes is cheaper to assemble and more liquid on the day. When out-of-the-money puts carry a richer volatility skew — common on Indian indices — the put version can be marginally more efficient.

Long put butterfly vs iron butterfly

An iron butterfly sells an at-the-money straddle and buys protective wings, so it opens for a credit and profits from a quiet market the same way. The long put butterfly opens for a small debit and has lower margin, but its peak reward sits exactly at the centre rather than across a flat plateau. The iron butterfly's profit zone is a touch wider; the put butterfly's risk is purely the cash you paid.

Common adjustments

If the index drifts, traders often roll the whole butterfly to recentre it on the new expected level, or skew it into a broken-wing butterfly by widening one side to erase the debit and lean slightly directional. Closing early once the price sits near the centre — rather than holding to expiry — locks in much of the gain while sidestepping last-day pin risk.

Frequently asked questions

Is a long put butterfly bullish or bearish?

Neutral. The trade pays off best when the underlying settles right at the middle strike, so you want the price to stay still rather than trend either way.

What is the maximum loss on a long put butterfly?

The net debit paid to open it. It is a defined-risk position — you can never lose more than that small premium, whichever way the underlying moves.

What is the maximum profit on a long put butterfly?

The wing width minus the net debit, multiplied by the lot size. It is realised only if the underlying expires exactly at the middle strike.

How is it different from a long call butterfly?

It uses puts rather than calls but produces almost the same payoff tent. Traders choose whichever strikes are cheaper or more liquid; the put version suits a market with richer out-of-the-money puts.

The bottom line

The long put butterfly is a precise, low-cost way to bet that a stock or index will sit still. You risk only a small debit for a multiple of that if the price pins the middle strike, with no open-ended exposure on either side. The price of that cheap reward is precision — you need the underlying to land near the centre — which makes it a thinking trader's neutral play rather than a set-and-forget income trade.

Related strategies & terms

• Long Call Butterfly — the same tent payoff built from calls.
• Iron Butterfly — a credit version that profits from the same quiet market.
• Short Straddle — a higher-reward, higher-risk way to bet on a still market.
• Defined Risk · Breakeven · Theta