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Write Put Butterfly Spread
MA180204 陳朝宏
Introduction
The write put butterfly is a neutral strategy.
It is a limited profit, limited risk options strategy.
There are three striking prices involved in a write
put butterfly and it can be constructed by writing
one lower striking put, buying two puts and
writing another higher, giving the options trader a
net credit to put on the trade.
Write Put Butterfly Construction
Example
Strike Price
Premium
Sell 1
7300
38
Buy 2
7500
85
Sell 1
7700
171
Example
Suppose an options trader executes a write
put butterfly by writing a 7300 put for 38,
buying two 7500 puts for 85 each and writing
another 7700 put for 171. The net credit
taken to enter the position is 39, which is also
his maximum possible profit.
Example
On expiration stock has dropped to 7300. All
the options expire worthless and the write put
butterfly trader gets to keep the entire initial
credit taken of 39 as profit. This is also the
maximum profit attainable and is also
obtained even if the stock had instead rallied
to 7700 or beyond.
Example
On the downside, should the stock remains at
7500 at expiration, maximum loss will be
incurred. At 7500, all except the higher
striking put expires worthless. The higher
striking put sold short would have a value of
200 and needs to be bought back to close the
trade. Subtracting the initial credit of 39 taken,
the net loss (maximum) is equal to 161.
Example
Limited Profit ：
MAX Profit＝171＋38－85－85＝39
Limited Risk：
MAX Loss＝200－39＝161
Breakeven Point(s)：
Upper Breakeven Point＝7500－161＝7339
Lower Breakeven Point＝7500＋161＝7661