Name: Inverse Broken Wing Butterfly w/ Puts

Setup: Sell (short) Strike A put and Buy (long) 2 Strike C puts and Sell (short) Strike D put

Bias: Extremely Bearish


Break-Even: Two break-even points:


  • Strike D – Credit received
  • Strike B + Credit received

Max Profit: Limited: Strike B – Strike A + Credit received

Max Loss: Limited: Strike D – Strike C – Credit received

Margin: Difference between prices of the short put spread

Time Decay: Time decay works both ways in this play depending on where the underlying is currently trading.  It will be your friend if the underlying is trading below Strike B or above Strike D.  At these levels you want the calls to drop in value to capture your profit.  If the underlying is trading around Strike C time decay becomes your enemy.  At this level you will receive the max loss.

Implied Volatility: Again volatility works in two ways on this play.  If the underlying is trading around Strike D or Strike B then you want it to decrease to increase the overall value of the position.  If the underlying is trading around Strike C then you want implied volatility to increase for two reasons.  First it will raise the value of your Strike C options plus it will hint at a strong move in either direction.

Notes: None at this time

Featured in Trade Review: None at this time