BTC is regaining its strength with new all time highs in the final quarter of 2021 and by all accounts it may appear to be a bull market, however if you aren’t so sure you could use a strategy called the 'put fly'.

Put fly is simply stacking puts on top of each other in such a way as to receive downside protection for a low cost, while still having defined risk.

Let's look at the put fly example with the assumption that BTC is trading at 55k, it would look like the following:

• 1 long put at 50k
• 2 short puts at 45k
• 1 long put at 40k

Remember, we pay a premium for the long puts and we receive a premium for selling puts or being short puts. As an example it could look like this.

1. 1 long put 50k = -\$1000
2. 2 short puts 45k = +\$1000 (\$500 each)
3. 1 long put 40k = -\$1000

Total cost = \$1000

As price moves below the long put, it gains in value and as price falls past the short puts, it loses value. To know your risk you need to have two of each so they balance each other out.

Take a look at the graph below where we bought 55k, sold two of the 50k and bought one 45k put:

You can see from the graph that we defined risk of around \$770 dollars. So whether BTC goes up or down we know how much we have at risk.

However, if BTC’s price starts to fall and ends up expiring right at our two short strikes (50k) we will net \$4,200. (if it expires anywhere in the triangle, we will make a profit.)

This helps us understand how much we can lose (defined risk) which is less risk than say a 1x2. We have mitigated the cost of our hedge by selling 2 puts. For example, if we were to only buy a put spread, our max loss to the upside would be double.

Our max gain to the downside with the put spread doesn’t quite match up to the butterfly either. The butterfly has a max gain of \$4,200 while the put spread only has a max gain of \$3,482. To be fair you have a higher probability of hitting your max gain with the spread over the fly.

To sum it up, it's cheaper than a put spread and you have a higher max gain, but it's less likely that you hit your max profit.

You also have defined risk, unlike a 1x2 which has unlimited risk to the downside.