Are butterflies worthless?

[RGLD]

It seems the Iron Condor can do everything a butterfly can maybe even better. You can even make IC's look like them by shorting the call and put at the money. Any cases you'd prefer doing flies over condors?

The only time I ever used Butterflies was when I bought 100 shares of stock for the ITM call to avoid time decay. The risk is obviously higher. I call it the Broken Bufferfly.

 

[El OchoCinco]

You can even make IC's look like them by shorting the call and put at the money.

You never heard of Iron Butterflys?

 

[Doobs789]

Selling a call and a put of the same strike (straddle) and buying an upside call and downside put (strangle) is commonly referred to as an "iron butterfly". This is synthetically equivalent to a call/put fly.

 

[RGLD]

So I guess if an IC shares the same strike price for the ATM contracts it's called an Iron Fly? lol

I've been calling it an IC since I'm more of a tradtionalist. To me it's still an IC, but I guess people can call it whatever they want as long as they get the combination right.

To me a butterfly will always be 4 calls or 4 puts.

 

[Doobs789]

So I guess if an IC shares the same strike price for the ATM contracts it's called an Iron Fly? lol

I've been calling it an IC since I'm more of a tradtionalist. To me it's still an IC, but I guess people can call it whatever they want as long as they get the combination right.

To me a butterfly will always be 4 calls or 4 puts.

Sure. What's in a name? A butterfly is 3 calls or puts FYI.

 

[RGLD]

Sure. What's in a name? A butterfly is 3 calls or puts FYI.

.... It's 4, but I guess you are combining the 2 calls with the same strike because you feel the need to correct me.

 

[destriero]

.... It's 4, but I guess you are combining the 2 calls with the same strike because you feel the need to correct me.

A long butterfly is:

Long 100/110/120 121 calls (3 options)
Long 100/110/120 121 puts (3 options)
Long 100P/120C strangle; short 110 straddle 4 options because it’s a combo (short iron fly)

Maybe you should patent your invention, clown shoes.

 

[Doobs789]

.... It's 4, but I guess you are combining the 2 calls with the same strike because you feel the need to correct me.

XYZ stock is 100. A "natural" call fly would be 100/110/120 (+1,-2,+1) say it's a 5.00 debit. Say the same put fly is 4.50. Both of these have three legs. The iron fly is 100/110/110/120 (+1 put, -1 put, -1 call, +1 call) is a 4.75 credit (which is 10-4.75=5.25 debit). All of these are synthetically equivalent. The difference in price is due to micro-structure. I will typically choose the tighter one (smaller bid/ask spread). In general OTM options are tighter than deep ITM. Or if the underlying pays a dividend, you may want to trade the iron (or put fly) to avoid the dividend risk that is inherent with being long an ITM call.

 

[Doobs789]

A long butterfly is:

Long 100/110/120 121 calls (3 options)
Long 100/110/120 121 puts (3 options)
Long 100P/120C strangle; short 110 straddle 4 options because it’s a combo (short iron fly)

Maybe you should patent your invention, clown shoes.

I'm thinking of patenting a spread that is short 3 puts and long 1 call. I'm tentatively calling it a "pitch-fork," but that's a working title.

 

[destriero]

I'm thinking of patenting a spread that is short 3 puts and long 1 call. I'm tentatively calling it a "pitch-fork," but that's a working title.

Yes, that sounds brilliant. How? How is this poosible?