any comments about call butterfly/condor v put version

OTCkrak · Feb 17, 2011

the text im reading says to choose based on the net debit/credit.. is that it?

also, is there a strategy where you buy a call butterfly/condor and sell the same put version? or spread against the iron version?

atticus · Feb 17, 2011

One is not materially cheaper than the other. The difference reflects carry, risk of assignment; basically microstructure issues (DITM more costly to fill), etc... the midpoint on both should be pretty close on both if looking at short durations.

spindr0 · Feb 17, 2011

As atticus noted, the price of equivalent positions should be approx the same. So if you sell a put equiv against its call equiv, you're just racking up commissions and a lot of B/A slippage, most likely, a losing proposition.

stoic · Feb 17, 2011

Quote from OTCkrak:

the text im reading says to choose based on the net debit/credit.. is that it?

also, is there a strategy where you buy a call butterfly/condor and sell the same put version? or spread against the iron version?

There are:

Long Call Butterfly
Long Call Condor
Short Call Butterfly
Short Call Condor

Long Put Butterfly
Long Put Condor
Short Put Butterfly
Short Put Butterfly

And the LONG and short Butterfly & Condor.

Each have their place. Provide an example underlying and I can run it throught the program and see the pros and cons for all.

(Commissions and B/A slippage are not as bad as some think)

atticus · Feb 17, 2011

Quote from stoic:

There are:

Long Call Butterfly
Long Call Condor
Short Call Butterfly
Short Call Condor

Long Put Butterfly
Long Put Condor
Short Put Butterfly
Short Put Butterfly

And the LONG and short Butterfly & Condor.

Each have their place. Provide an example underlying and I can run it throught the program and see the pros and cons for all.

(Commissions and B/A slippage are not as bad as some think)

It's really a matter of condor vs. fly. What iteration (call vs. put vs. iron) you choose is immaterial.

OTCkrak · Feb 17, 2011

Quote from stoic:

There are:
Long Call Butterfly
Long Call Condor
Short Call Butterfly
Short Call Condor

Long Put Butterfly
Long Put Condor
Short Put Butterfly
Short Put Butterfly

And the LONG and short Butterfly & Condor.

i think you meant to write IRON long and short ..

im familiar with the composition of most spreads, and the basic behaivor/relationship of the greeks but im still very confused about when to use one strategy vs another, which text books are mainly vague about.

do -option traders- focus on executing one or two types of strategies many times over? obviously there are infinite combination of spreads, but im thinking newbs should focus on basic debit spreads first?

my background is trading directional futures and time spreads/ pairs. my problem with -neutral- strategies is that you are still basically making a directional bet on a greek - right?

another question is this.. is there any value in using charts/ta to identity S/R and use those levels as strike prices? im thinking you have to.. but is that information already priced in? and can an experienced spreader indentify S/R levels from the implied vol of prices?

stoic · Feb 17, 2011

Quote from OTCkrak:

im familiar with the composition of most spreads, and the basic behaivor/relationship of the greeks but im still very confused about when to use one strategy vs another, which text books are mainly vague about.

For me the bottom line is what do I expect the underlying to do. Then look at the stretegies that fits the expectation. Then which one offers the best risk v. reward.

Forget the Greeks!!

jogomax · Feb 18, 2011

Quote from stoic:

Forget the Greeks!! [/B]

Wow, under no reason I would suggest the idea of forgetting the Greeks. They must be present in your strategy, cos when the things change you will know exactly WHY and approximately how much.

stoic · Feb 18, 2011

Quote from jogomax:

Wow, under no reason I would suggest the idea of forgetting the Greeks. They must be present in your strategy, cos when the things change you will know exactly WHY and approximately how much.

Yes, I would have to agree. The Greeks are very accurate in predicting the past.

tomk96 · Feb 18, 2011

Quote from jogomax:

Wow, under no reason I would suggest the idea of forgetting the Greeks. They must be present in your strategy, cos when the things change you will know exactly WHY and approximately how much.

the OP was about condor's and fly's. unless you are putting them on big, there is negligible greeks associated with it. or your fly is really wide, skewed, or something along those lines.