S&P 500 ETF (SPY) Long-Term Put Butterfly

This is a long-term trade that we will likely be patient with for multiple months. It is a June Put Butterfly on the Spyder (SPY). We will profit if the market has an intermediate-term pullback. If the short-term downtrend never materializes, then we will be at risk for the cost of the trade (i.e., the total debit).

The trade details are as follows (NOTE: regular June options, NOT quarterly June options being used for this trade):

Buy to open @ ratio of 1: June 112.00 strike puts (SPYRH)
Sell to open @ ratio of 2: June 107.00 strike puts (SWGRC)
Buy to open @ ratio of 1: June 102.00 strike puts (SWGRX)
Limit debit: 0.50

Maximum risk = 0.50 (or $50 per butterfly traded)
NOTE: A loss of the entire 0.50 is a very real possibility, so trade accordingly.

Maximum reward = 4.50 (or $450 per butterfly traded)
NOTE: A gain of the entire 4.50 is a low probability

A realistic gain is probably 1.00 to 2.00 per butterfly traded.

Actual Reward-to-Risk Ratio = 8 to 1 (realistic reward-to-risk ratio = 3 to 1)

What is the difference between the actual and the realistic reward-to-risk ratios? The SPY would have to end up at exactly $107 per share on June expiration to have the maximum gain. That is a very low probability. However, there are many scenarios where we can make between 1.00-2.00 per butterfly in the trade. In option trading, you have to look at your absolute best and wost case scenarios. However, you plan your trades based on "most likely" best and worst case scenarios.