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What is a Bear Butterfly?

A Bear Butterfly Spread is a limited-risk, limited-reward options strategy using Puts.

  • It is a combination of a Bear Spread and a Bull Spread.
  • Constructed with 3 different Put strikes (same expiry).
  • Works best when you expect the underlying to settle near the middle strike (ATM) at expiry.

🔹 Market View

  • Expectation: Neutral to slightly bearish.
  • Best Use Case: You expect a mild decline toward a target level.

🔹 Volatility View

  • Works in low IV environments (cheaper options, better risk-reward).

🔹 Example (Nifty @ 20,000)

You set up a Bear Put Butterfly:

  • Buy 19,800 Put = ₹120
  • Sell 2 × 20,000 Puts = 2 × ₹200 = ₹400
  • Buy 20,200 Put = ₹320

👉 Net Debit = 120 + 320 – 400 = ₹40

🔹 Payoff Analysis

  • Max Profit: Middle Strike – Lower Strike – Net Debit = (200 – 40) = ₹160
  • Max Loss: Net Debit = ₹40
  • Breakevens:
    • Lower Breakeven = 19,800 + 40 = 19,840
    • Upper Breakeven = 20,200 – 40 = 20,160

How Profit is Arrived At:

  • If Nifty closes at 20,000 (middle strike):
    • 19,800 Put = 0 intrinsic
    • 20,000 Puts (short) = expire ITM (200 each × 2 = 400)
    • 20,200 Put = 200 intrinsic
    • Net payoff = 200 – 40 = ₹160 profit
  • If Nifty < 19,800 or > 20,200:
    • Options cancel out → Loss = ₹40 (net debit)

How to Deploy a Bear Butterfly in Firstock

The Bear Butterfly Spread is available as a predefined strategy in the Firstock terminal. It can be deployed in just a few clicks, without the need to manually enter each leg.

🔹 Step-by-Step Deployment

  1. Login to Firstock
    • Open the Firstock web or mobile app and log in with your credentials.
  2. Open Option Chain / Strategy Watchlist
    • Navigate to the Strategy Watchlist or directly open the Option Chain.
  3. Select Predefined Strategy
    • From the predefined list, choose “Bear Butterfly.”
  4. Click on Build
    • For Nifty, the system automatically selects:
      • ATM – 200 Put → Buy
      • ATM Put → Sell (2 lots)
      • ATM + 200 Put → Buy
  5. Save & Deploy
    • Review the strike prices, net debit, and margin requirements.
    • Click Save and Deploy to execute the strategy.

🔹 What You Get After Deployment

Once deployed, Firstock instantly provides:

  • Payoff Chart (showing profit/loss at expiry)
  • Option Greeks (Delta, Gamma, Theta, Vega)
  • Breakeven Points (lower and upper)
  • Probability of Profit (POP)
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