Short Put Butterfly

This is a volatility strategy consisting of a short position in an ITM put option with a strike price K1 , a long position in two ATM put options with a strike price K2 , and a short position in an OTM put option with a strike price K3 . The strikes are equidistant: K2 − K3 = K1 − K2 = κ . This is a net credit trade. In this sense, this is an income strategy. However, the potential reward is sizably smaller than with a short straddle or a short strangle (albeit with a lower risk). The trader’s outlook is neutral.