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The amount is too small in relation to the possible price swing of the underlying. Say, UL moves up $6 by expiration. 1st degree call would double from 3 to 6, 2nd degree would go from 0.8 to 3, and 3rd degree - from .002 to 2.2. Who would risk 2.2 to gain .002 if they can risk 6 to gain 3?

Who would be selling an option for 0.002 and why?

Sure. Got a link?

That's good to know. Thanks!

Is there any ready to use site or software package that allows to create these graphs?

Jeff Augen uses price movements expressed in standard deviations. That allows to see how frequently a given stock spikes one way or another and how big these spikes are in relation the the stock price.

For this trade? No. It is initiated on Wed of the OpEx week using the next month options. The wings are 4-5 wide and the mid point is next strike above current SPY price.

Opened Nov 141/146/151 SPY IB for 3.22 credit. Total risk is 5-3.22=1.78 per spread. Let's see how it flies :-)

Ironflies and callfiles have different spreads and that is especially true at the expiration. However, I don't hold IB till expiration anyhow. I open it ATM and I close it ATM. That makes IB superior from the trade execution perspective.

There are differences between iron and put/call 'flies. The only time they are the same (theoretically) is at the expiration. ATM IB has smaller spreads due to the fact most legs are OTM. It also behaves differently when UL crashes down and the call premiums evaporate while long put delta...

To me "buying" means a debit transaction while "selling" a credit one. Hence, call or put 'flys are "bought" and iron 'fly is "sold" to open a position.

I am selling Iron 'Fly (+1P/-1P/-1C/+1C), not buying it. Selling IB is <u>selling</U> volatility as IB is short vega. However, that is not the whole story. The position may become profitable even if the IV of the puts increases. This happens when SPY goes down quickly and then bounces off the...

Yes. Sold to open for 2.66 and bought back for 2.46. It became even cheaper several days later.

I opened 143/147/151 IB on 09/19 for 2.66 credit and closed it on 9/21 for 2.46. Gain was ~11% after commissions. Have you tried a similar trade?

What is "hybrid IC"?

Double calendar is a combination of 2 calendars. E.g: +SPY 150 Nov Call - SPY 150 Oct Call +SPY 140 Nov Put - SPY 140 Oct Put Double Diagonal is a combination of 2 diagonals (different strikes for long and short options). E.g: +SPY 150 Nov Call - SPY 151 Oct Call +SPY 140...

I did not mean 1% of the strike price. I meant 1% of the total combo price. Compare that to stocks. A $20 stock usually trades with 1-5c spread. A $20 option, on the other hand may have a spread of $1. That's not right.

What do you mean by "a lot"? I routinely see 10% or more spreads on some combos that I am interested in. For example, Sep 360/380 AZO strangle was 6.00/7.00 ($1 spread!) today. 1% would be 6.44/6.50. That's a fair spread.

Can we somehow force MMs to reduce bid/ask spread? Petition SEC perhaps to make spreads no more than 1% of the contract value and do sub-pennies for smaller contracts or combos? Years ago Island & Co forced Nasdaq and NYSE to move from $1/16ths to 1c increments in stock prices. Is there a...

Not really. The trade is opened when there are 30+ days are left till option expiration and closed within 10 following days. By that time there will be plenty of time value left in ITM option even if they go deep ITM.