Tim Olson
47471b7700
- Flink update_bars debouncing - update_bars subscription idempotency bugfix - Price decimal correction bugfix of previous commit - Add GLM-5.1 model tag alongside renamed GLM-5 - Use short Anthropic model IDs (sonnet/haiku/opus) instead of full version strings - Allow @tags anywhere in message content, not just at start - Return hasOtherContent flag instead of trimmed rest string - Only trigger greeting stream when tag has no other content - Update workspace knowledge base references to platform/workspace and platform/shapes - Hierarchical knowledge base catalog - 151 Trading Strategies knowledge base articles - Shapes knowledge base article - MutateShapes tool instead of workspace patch
1.7 KiB
description, tags
| description | tags | ||||
|---|---|---|---|---|---|
| A neutral net credit strategy selling an ITM put at K1, buying two ATM puts at K2, and selling an OTM put at K3, profiting from a large move away from K2. |
|
Short Put Butterfly
Section: 2.43 | Asset Class: Options | Type: Volatility
Overview
The short put butterfly is a volatility strategy consisting of a short ITM put at K1, a long position in two ATM puts at K2, and a short OTM put at K3. The strikes are equidistant: K2 - K3 = K1 - K2 = kappa. This is a net credit trade. In this sense it is an income strategy. However, the potential reward is sizably smaller than with a short straddle or short strangle (albeit with lower risk). The trader's outlook is neutral.
Construction
- Sell 1 put option at strike K1 (ITM, upper wing, K1 > K2)
- Buy 2 put options at strike K2 (ATM, body)
- Sell 1 put option at strike K3 (OTM, lower wing, K3 < K2)
- All same expiry; K1 - K2 = K2 - K3 = kappa (equidistant)
Net credit: C
Payoff Profile
f_T = 2 × (K2 - S_T)+ - (K1 - S_T)+ - (K3 - S_T)+ + C
- Lower breakeven: S*_down = K3 + C
- Upper breakeven: S*_up = K1 - C
- Max profit: P_max = C (if S_T >= K1 or S_T <= K3)
- Max loss: L_max = kappa - C (if S_T = K2 at expiry)
Key Conditions / Signals
- Neutral; expects stock to move significantly away from K2 by expiry
- High implied volatility environment; collect larger credit upfront
- Lower risk than a short straddle or strangle but also lower reward
Notes
The short put butterfly is the reverse of the long put butterfly. Credit is collected upfront and profit is achieved if the stock moves far enough from K2. The maximum loss is bounded by the wing width kappa minus the credit received.