Comparision (SHORT PUT BUTTERFLY
VS BEAR PUT SPREAD)
Compare Strategies
SHORT PUT BUTTERFLY
BEAR PUT SPREAD
About Strategy
Short Put Butterfly Option Strategy
In Short Put Butterfly strategy, a trader is neutral in nature and expects the market to remain range bound in the near future. A trader will buy 2 ATM Put Options; sell 1 ITM & 1 OTM Put Options. Here risk and returns both are limited.
When a trader is moderately bearish on the market he can implement this strategy. Bear-Put-Spread involves buying of ITM Put Option and selling of an OTM Put Option. If prices fall, the ITM Put option starts making profits and the OTM Put option also adds to profit at a certain extent if the expiry price stays above the OTM strike. However, if it falls below the OTM ..
Upper Breakeven Point = Strike Price of Highest Strike Short Put - Net Premium Received, Lower Breakeven Point = Strike Price of Lowest Strike Short Put + Net Premium Received
Strike Price of Long Put - Net Premium
SHORT PUT BUTTERFLY Vs BEAR PUT SPREAD - When & How to use ?
SHORT PUT BUTTERFLY
BEAR PUT SPREAD
Market View
Neutral
Bearish
When to use?
In Short Put Butterfly strategy, a trader is neutral in nature and expects the market to remain range bound in the near future.
The bear call spread options strategy is used when you are bearish in market view. The strategy minimizes your risk in the event of prime movements going against your expectations.
Action
Sell 1 ITM Put, Buy 2 ATM Put, Sell 1 OTM Put
Buy ITM Put Option, Sell OTM Put Option
Breakeven Point
Upper Breakeven Point = Strike Price of Highest Strike Short Put - Net Premium Received, Lower Breakeven Point = Strike Price of Lowest Strike Short Put + Net Premium Received
Strike Price of Long Put - Net Premium
SHORT PUT BUTTERFLY Vs BEAR PUT SPREAD - Risk & Reward
SHORT PUT BUTTERFLY
BEAR PUT SPREAD
Maximum Profit Scenario
Net Premium Received - Commissions Paid
Max Profit = Strike Price of Long Put - Strike Price of Short Put - Net Premium Paid.
Maximum Loss Scenario
Strike Price of Higher Strike Short Put - Strike Price of Long Put - Net Premium Received + Commissions Paid
Max Loss = Net Premium Paid.
Risk
Limited
Limited
Reward
Limited
Limited
SHORT PUT BUTTERFLY Vs BEAR PUT SPREAD - Strategy Pros & Cons
SHORT PUT BUTTERFLY
BEAR PUT SPREAD
Similar Strategies
Short Condor, Reverse Iron Condor
Bear Call Spread, Bull Call Spread
Disadvantage
• High risk strategy and may cause huge losses if the price of the underlying stocks falls steeply. • Higher profit is only possible when shares get close to expiration.
• Limited profit. • Early assignment risk.
Advantages
• Benefits from time decay. • Traders can earn more in a rising or range bound scenario. • Benefits from a surge in volatility.
• If the strike price, expiration date or underlying stocks are rightly chosen then risk of losses would be limited to the net premium paid. • This strategy works well in declining markets. • Limited risk.