Are butterflies worthless?

[tommcginnis]

Whether an option pattern (including a butterfly) is a debit or a credit depends only on it's net impact to the account. It is not dependent on a name. Ferchrisake.

Where the underlying market is relative to a option pattern has nothing to do with what that option pattern is called: where a butterfly sits has nothing to do with the underlying market. Ferchrisake.

That's like describing a car according to how it operates on a two-lane road. There might be general patterns, no doubt -- but if we have to shift lanes in a construction zone?? Does that mean we're no longer driving a car??? WOW.

I gotta go. I can't be doing this.

 

[destriero]

1. 121 call fly = 121 put fly. Termed the "natural" fly as it's not a combination.
2. Natural fly = straddle + strangle "iron" fly.
3. Iron fly = short put spread (bull) + short call spread (bear).

The box arbitrage dictates the equivalence. In #3 above; the conversion from the iron fly to the natural call fly is done by replacing the short put spread (bull) with a long call spread (bull)--the box arbitrage.

 

[destriero]

Whether an option pattern (including a butterfly) is a debit or a credit depends only on it's net impact to the account. It is not dependent on a name. Ferchrisake.

Where the underlying market is relative to a option pattern has nothing to do with what that option pattern is called: where a butterfly sits has nothing to do with the underlying market. Ferchrisake.

That's like describing a car according to how it operates on a two-lane road. There might be general patterns, no doubt -- but if we have to shift lanes in a construction zone?? Does that mean we're no longer driving a car??? WOW.

I gotta go. I can't be doing this.

What he's saying above is that an iron at a credit = a natural at a debit. There is no inherent advantage to either.

 

[El OchoCinco]

Looks like OP drowned when the topic got way over his head...

 

[destriero]

Cognitive dissonant types that think they are experienced and don’t understand synthetics on the most basic level.

 

[JSOP]

Looks like OP drowned when the topic got way over his head...

I agree with @tommcginnis, the name of the trade pattern which is really based on how it looks on a payout diagram (with some imagination) really doesn't matter, what matters is using the right options strategy for each different market situation.

 

[sle]

Cognitive dissonant types that think they are experienced and don’t understand synthetics on the most basic level.

To be fair, maybe they all work for Goldman Sachs and their funding rate is vastly different from the market. Or maybe they don’t have to pay borrow. Or maybe they pay no taxes on dividends.

 

[Dolemite]

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.

People always ask me why I trade options when it is a product dominated by the brightest minds in the industry. I didn't even know a bufferfly existed!! Is there a course or book I can buy somewhere? I need to make 23% per month (I am not greedy like those 25% a month guys) and this just might be the ticket.

 

[El OchoCinco]

"Showin' much flex when it's time to wreck a mic
Pimpin' hoes and clockin' a grip like my name was Dolomite"

- Dr. Dre

 

[drcha]

Flies are more useful for certain purposes:

1. You think the UL is going to a certain point. Use a fly centered at that point.
2. You would like to sell a straddle, but want to limit the risk. Use a fly with distant wings.

Iron, puts, calls, doesn't matter. I use irons only because I'm used to them and therefore less likely to make a mistake when trading early in the morning before my full dose of caffeine kicks in.