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Zerodha (Trading Account)
FREE Equity Delivery and MF
Flat ₹20/trade Intra-day/F&O
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Compare Short Put and Short Call Butterfly options trading strategies. Find similarities and differences between Short Put and Short Call Butterfly strategies. Find the best options trading strategy for your trading needs.
| Short Put | Short Call Butterfly | |
|---|---|---|
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| About Strategy | A short put is another Bullish trading strategy wherein your view is that the price of an underlying will not move below a certain level. The strategy involves entering into a single position of selling a Put Option. It has low profit potential and is exposed to unlimited risk. A short put strategy involves selling a Put Option only. For example if you see that the shares of a Company A will not move below Rs 1000 then you sell the Put Option of that stock at Rs 1000 and receive the premium amount. The premium received will be the maximum profit you can earn from this trade. However, if the price of the underlying moves below 1000 then you will incur unlimited losses. | Short Call Butterfly (or Short Butterfly) is a neutral strategy similar to Long Butterfly but bullish on the volatility. This strategy is a limited risk and limited profit strategy. This strategy consists of two long calls at a middle strike (or ATM) and one short call each at a lower and upper strike. All the options must have the same expiration date. Also, the upper and lower strikes (or wings) must both be equidistant from the middle strike (or body). In simple terms, it involves Sell 1 ITM Call, Buy 2 ATM Calls and Sell 1 OTM Call. The strike prices of all Options should be at equal distance from the current price as shown in the example below. The usual Short Butterfly strategy looks like as below for NIFTY current index value as 1... Read More |
| Market View | Bullish | Neutral |
| Strategy Level | Beginners | Advance |
| Options Type | Put | Call |
| Number of Positions | 1 | 4 |
| Risk Profile | Unlimited | Limited |
| Reward Profile | Limited | Limited |
| Breakeven Point | Strike Price - Premium | 2 Break-even Points |
| Short Put | Short Call Butterfly | |
|---|---|---|
| When to use? | Short Put works well when you're Bullish that the price of the underlying will not fall beyond a certain level. |
This strategy is meant for special scenarios where you foresee a lot of volatility in the market due to election results, budget, policy change, annual result announcements etc. |
| Market View | Bullish When you are expecting the price or volatility of the underlying to increase marginally. |
Neutral When you are unsure about the direction in the movement in the price of the underlying but are expecting high volatility in it in the near future. |
| Action |
A short put strategy involves selling a Put Option only. So if you see that the shares of a Company A will not move below a 1000 then you sell the Put Option of that stock at 1000 and receive the premium amount. The premium received will be the maximum profit you can earn from this deal. However, if the price of the underlying moves below 1000 than you will incur losses. |
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| Breakeven Point | Strike Price - Premium |
2 Break-even Points There are 2 break even points in this strategy.
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| Short Put | Short Call Butterfly | |
|---|---|---|
| Risks | Unlimited There is no limit to losses incurred in the trade. The risk is when the price of the underlying falls, and the Put is exercised. You are then obliged to buy the underlying at the strike price. |
Limited The maximum risk is limited. Maximum Risk = Higher strike price- Lower Strike Price - Net Premium |
| Rewards | Limited The profit is limited to premium received in your account when you sell the Put Option. |
Limited The profit is limited to the net premium received. This happens when the price of the underlying is trading beyond the range of strike prices at expiration date. |
| Maximum Profit Scenario | Underlying doesn't go down and options remain exercised. |
All Options exercised or not exercised |
| Maximum Loss Scenario | Underlying goes down and options remain exercised. |
Only ITM Call exercised |
| Short Put | Short Call Butterfly | |
|---|---|---|
| Advantages | It allows you benefit from time decay. And earn income in a rising or range bound market scenario. |
This strategy requires no investment as net premium is positive and received. It allows you to benefit from high volatile market scenarios without the need to speculate on the direction of price movement. |
| Disadvantage | It is a high risk strategy and may cause huge losses if the price of the underlying falls steeply. |
Profitability depends on significant movement in the price of the underlying. |
| Simillar Strategies | Bull Put Spread, Covered Call, Short Straddle |
Long Straddle, Long Call Butterfly |
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