Snapshot
Legs
Buy 1 High Put + Sell 2 Mid Puts + Buy 1 Skip-Strike Low Put
Outlook
Neutral to Mildly Bearish
Max profit
Upper width plus net credit received
Max Loss
Difference in wing widths minus net credit received
A put broken wing butterfly strategy involves buying one high-strike put, selling two middle-strike puts, and buying one low-strike put with a wider gap between the middle and low strikes. This design allows you to open the position for an upfront net credit. Investors deploy this strategy when targeting a specific downward price level without taking loss risk on an upward rally.
Peak profit is reached if the stock closes precisely at the middle strike price at expiration. If the stock rallies higher, all options expire worthless and you retain the upfront credit. The maximum loss is restricted to the wider lower wing if the stock plummets far past the lowest strike.
Example
Stock
$100
Trade
- Buy one $105 Put for $6.00
- Sell two $100 Puts for $3.50 each
- Buy one $90 Put for $0.50
→ $0.50 credit ($50)
Breakeven
$94.50 (Downside only)
Outcomes
- Stock at $100: +$550 Max Profit
- Stock ≥ $105: +$50 Credit Kept
- Stock < $94.50: Loss Zone (e.g., -$450 at $85)