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A three-strike, all-put strategy that bets on a big move in either direction — the same basic thesis as a Short Straddle, but with a fully defined maximum loss instead of undefined risk.

A Short Put Butterfly sells one put at a high strike, buys two puts at a middle strike, and sells one put at a low strike — all at the same expiry. This is the inverse of a standard (long) butterfly: instead of betting the underlying stays near the middle strike, it profits when the underlying moves well away from it, in either direction, and only loses if the underlying finishes close to the middle.

The two short legs (at the high and low strikes) generate the net credit. The two long puts at the middle strike are what create the dip in the middle of the payoff — they're worth the least when the underlying sits right at that strike, which is exactly the scenario this strategy doesn't want.

The payoff shape is the mirror image of an Iron Butterfly's: instead of a peak at the middle strike, there's a dip.

1. Well above the high strike, or well below the low strike — flat, maximum profit. All the options resolve in a way that nets out to the full credit collected.
2. Approaching the middle strike from either side — profit shrinks as the underlying nears the middle, crossing into a loss at each breakeven.
3. Exactly at the middle strike — maximum loss. This is the single worst outcome for the position.

This is genuinely the opposite risk profile from every range-bound strategy explained elsewhere on this site — here, the underlying not moving is the bad outcome, and a big move in either direction is what the position wants.

A Short Put Butterfly fits a view that the underlying will make a significant move, but you're not sure which direction — similar to what draws traders to a Short Straddle, but for those who specifically want the maximum loss capped rather than open-ended. It's a reasonable way to position for an event with a genuinely uncertain outcome (a binary announcement, for example) while still knowing your worst case in advance.

Suppose Nifty is trading at 24,000 with a weekly expiry coming up, and lot size is 65. You expect a significant move but aren't sure which direction.

1. Confirm the setup. You expect Nifty to move away from 24,000 significantly, but the direction is genuinely uncertain.
2. Sell 1 put at the 24,300 strike, collecting a premium of 320.
3. Buy 2 puts at the 24,000 strike, paying a premium of 140 each — 280 total.
4. Sell 1 put at the 23,700 strike, collecting a premium of 58.
5. Calculate the net credit: (320 + 58) − 280 = 98 points, or ₹6,370 at this lot size.
6. Understand the profit zones: at or beyond either wing (24,300 or 23,700), you keep the full ₹6,370 credit.
7. Understand the danger zone: the position loses money between roughly 23,798 and 24,202, with the worst outcome — a loss of ₹13,130 — occurring exactly at 24,000.
8. See how it resolves at expiry:
   • Nifty finishes at 23,000 or 25,000 (well away from 24,000) → flat profit of ₹6,370.
   • Nifty finishes exactly at 24,000 → maximum loss of ₹13,130.
   • Nifty finishes right at either breakeven → you exactly break even.

Quick reference for the same trade:

Based on the worked example above. Notice the dip in the middle — the exact mirror of an Iron Butterfly's peak. Move the cursor over the chart to see profit/loss at any price.

• The worst outcome is exactly the scenario many traders expect by default — the underlying staying roughly where it is. This strategy only works if your "big move, uncertain direction" thesis is actually correct.
• Three separate legs, one at 2x size, mean higher execution cost than a simple two-leg spread.
• Index options on NSE are typically European-style and cash-settled — no early-assignment risk on the short legs.
• This is not a beginner strategy — the inverted payoff shape (loss in the middle, profit at the edges) is easy to confuse with an ordinary butterfly if you're not reading it carefully.