Long Put Butterfly Option Screener

Hi, and welcome to the Options Learning Center. I'm going to show you how to buy long put butterflies and use Barchart to get the most out of the strategy.

What Is A Long Put Butterfly Spread?

The long put butterfly is a neutral options strategy that requires four put options, two of which are at the same strike price, on the same underlying asset, and with the same expiration date. The strategy works best if you anticipate the asset will trade with low volatility until expiration.

For that reason, you could consider trading a long put butterfly after a big event, such as earnings or news release - after the volatility is already baked into the underlying securities' price.

The maximum profit condition happens if the asset's price ends exactly at the middle strike price, however, you'll make a profit so long as the underlying trades between the breakeven points at expiration.

Long Butterfly Spread Options Strategy:

• Combines Four Put Options
• Same Underlying Asset And Expiration
• Profit If The Price End At The Short Strike
• Result: Bull Put & Bear Put Spread
• Max Profit: Spread Width Less Net Debit
• Loss: Underlying Asset Trades Beyond Long Strikes

To set up the trade, you'll buy one put at a lower strike, sell two puts at a middle strike, and buy one put at a higher strike. All options will have the same underlying asset and expiration date, with the strike prices equally spaced.

Long Put Butterfly

• Buy One Put (lowest strike price)
• Sell Two Puts (higher strike price)
• Buy One Put (highest strike price​)

The result is a bull put and bear put spread that results in a net debit.

The goal of a long put butterfly is for the underlying asset's price to trade at exactly the middle strike price. If that happens, you'll achieve maximum profit at expiration when the options settle. Of course, the chances of the underlying ending exactly in the middle are low, so traders are often happy even if it ends somewhere around it. Traders will make a profit as long as the underlying trades between the breakeven points at expiration.

The maximum profit on a long put butterfly is the difference between the middle strike and either of the outer strike prices, minus the net debit.

The maximum loss is limited to the net debit paid at the start of the trade. This happens if the asset price at expiration either trades below the lowest strike price or above the highest strike price.

Trade Examples

Searching for long put butterflies at random will take a lot of time, so it's best to use Barchart's option screener to get your trade ideas. Let me show you how.

Screening The Market For Long Put Butterfly Trades

To access the Long Put Butterfly screener, go to Barchart.com, click on the Options tab, and then click on Long Put Butterfly Screener. You'll be brought to a results screen for long put butterflies. These trades represent results based on a default filter that balances risk and reward, to give you a good starting point.

On this screen, you can find important trade information like underlying assets, trading prices, expiration dates, your strike prices, premiums, expected profits and losses, and other details. You can click on any of these column headers to rearrange the results based on them, highest to lowest or vice versa.

However, if you prefer to have more control over your option screens, you can click on the Set Filters tab to get to the option screener page. Here, you'll find different filters that you can use to fine-tune your search.

To add filters, just type in what you need in the add a filter feed box and click add. Alternatively, you can click the dropdown and select from the dozens of filters here, which include stock and technical information. To remove filters you don't want or need, just click on the box beside them and then delete.

I currently have the default filters set up here, which, again, are perfectly fine for your trade. I'll scroll down and change the days to expiration to 15 to 30 days. Then, at the bottom, let's look at the probability of profit, arguably the most important filter here. This predicts the chance of the trade being profitable at expiration, even by just a cent.

Now, due to the exacting nature of a long put butterfly, the chances of achieving maximum profit is low. For that reason, we're more concerned about the chances of earning a profit. So, I'll set the value here to 50% or more to improve my chances. Then, I'll click on see results.

Now, before I dig into a trade, did you know that you can save your customized screeners and even have Barchart email you new and updated results at specific times? All you need to do is click Save Screener up here, name the screen, then select when to send the results and how many do you want per email. It's that easy.

Now, let's get back to the trade. I'll arrange the results based on probability of profit, taking the highest one as an example. And so, we have our trade.

According to the screener, you can set up a long put butterfly spread on SPY, with the ETF currently trading at $580.83 at the time of recording. Here's how this trade works: you buy the $510-strike put for the lower long put, paying a premium of $0.85 per share. Then, you sell two $560-strike puts, collecting $4.07 per share for each. Finally, you buy the $610-strike put, paying $29.53 per share.

This setup results in a total net debit of $22.24 per share, or $2,224 total for one contract. Your maximum profit on the trade is $27.76 per share or $2,776 per contract. All options expire on November 22, with 24 days remaining until expiration. And the trade has a 57.9% probability of profit.

I find it's best knowing the breakeven points on the upside and downside to when monitoring the trade. Barchart gives you the breakeven points, but, if you want to calculate it yourself, add the net debit to the lower strike to get the downside breakeven. For the upside breakeven, subtract the net debit from the higher strike. That gives you breakeven points of $532.24 on the lower end and $587.76 on the upper end.

Breakeven Calculation

• Lower Breakeven: Lower Long Put Strike + Net Debit
• Upper Breakeven: Higher Long Put Strike - Net Debit

Now that we have our trade details, let’s see how this trade can go.

Profit Scenario

If SPY trades at $560 at expiration, this long put butterfly trade will end at its maximum profit condition. The maximum profit is calculated by taking the distance between the middle short strikes and either of the long strikes, also known as the width of the spread. So, for this trade, that works out to $50. Then, you subtract the total premium paid, giving us a maximum profit of $27.76 a share or $2,776 per spread.

Maximum Profit Calculation

Width of Spread: $610 - $560 = $50
Debit Paid: ($0.85 + $29.53) − ($4.07 * 2) = $22.24
Total Profit: $50 - $22.24 = $27.76 * 100 = $2,776

Loss Scenario

However, if SPY moves beyond the long strikes - that’s lower than $510 or higher than $610, then the trade will end at maximum loss. The maximum loss is the debit paid for the trade, which is $22.24 or $2,224 per spread.

Debit Paid: ($0.85 + $29.53) − ($4.07 * 2) = $22.24 * 100 = $2,224

Profit/Loss Across Different Price Points

For a better overview of this specific long put butterfly trade, here are the profit/loss values across different prices.

As you can see, the maximum profit is achieved if SPY trades at exactly $560 by expiration, and the rest are either partial profits or losses until the trade reaches the outer long put strikes.

Screening For Long Put Butterflies For Specific Assets

So that’s screening the entire market for assets to use for long put butterfly trades. But what about if you have a specific stock in mind? You can do that in a couple of easy steps.

All you need to do is go to the stock or asset's Price Overview page on Barchart.com. Once there, navigate to the left and look for Butterfly spreads. Then, click the long put butterfly tab to see the trade search results.

You can click on the dropdown to change the expiration dates, change trade legs, rearrange each column, or click the screen button, then set the filter to reach the option screener page for a more granular search.

Closing Your Positions Before Expiration

It is always a good idea to close your positions right before expiration when using any strategy that requires writing or selling options. For this example, you have two short positions in this trade at the same strike price, and if they’re in the money at expiration, the options will be exercised, or, in your perspective, you will be assigned. Early assignments can also happen, especially close to expiration or if the short puts are in the money.

• The strategy includes two short positions
• ITM option(s) will be exercised at expiration

If either of the short puts gets assigned, you’re obligated to buy 100 shares of stock for every contract you wrote, which can be significantly higher than the current selling price.

• Assignment means selling 100 shares at the strike price
• Adverse market conditions could lead to a loss

But don’t forget, you may also be able to sell your long puts to capture any remaining value, which will mitigate some of your losses. But keep an eye out for trading fees as they might be more than what the options are worth.

• Sell long puts to capture any remaining value
• Watch out for trading fees

Pros and Cons of Long Put Butterfly Spreads

Long put butterflies, like most spreads, have a clearly defined profit/loss profile at the onset. This is excellent for risk-averse traders, as they get to weigh the benefits of the trade before diving in. Of course, with that comes limited losses. The strategy is also excellent for neutral or low-volatility markets where minimal price movements are expected. Long put butterflies also benefit from time or theta decay, and trades can be closed early once maximum profit conditions are met.

• Define Profit/Loss Profile
• Limited Losses
• Low-Volatility Strategy
• Benefits From Time or Theta Decay

However, the strategy also comes with limited potential for profit and can be complex for beginner traders. Unlike other spreads, the long put butterfly only archives max profit at a specific price point, namely the short strikes, so it requires pinpoint market forecasting. It also requires four trade legs, which can increase trade costs. Lastly, and as mentioned earlier, long put butterflies have a low probability of maximum profit.

• Limited Profits
• Complexity
• Max Profit Only Achieved At One Price Point
• Exact Market Forecast Required
• Increased Trade Costs
• Average Probability of Profit Near 50%

Conclusion

The long put butterfly spread is an excellent strategy for neutral and low-volatility markets. However, it has a low chance of maximum profitability, and can require a lot of capital to get into the trade. While profits are limited, careful planning and adjustments can enhance profitability. That's why monitoring your trades closely and utilizing all resources, including Barchart's option screener, is essential to maximize your profitability.

Don't forget to visit the Barchart Options Learning Center where you can learn more about the long put butterfly and how it works, in addition to all the other option trading strategies we offer.