ATM Iron Butterfly - Why is it Delta Negative?

V

ValZ2020

Hello guys, happy Friday to everyone!

Have a novice question here. In a book by Chen and Sebastian (Option Trader's Hedge Fund) they give a great example of how to structure an ATM Iron Butterfly. One thing that I'm struggling to understand is why the fly ends up being delta negative?

My understanding is that both short ATM call and put will basically offset each other for the delta, while the long OTM call will have a higher positive delta than the negative delta of the long OTM put. The OTMs are of course equidistant from the ATM strikes. So why is this position then net negative in terms of delta? What am I missing?

Many thanks!
 
Sekiyo said:
I am not an option trader but I don't see why you wouldn't be delta neutral...
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Here is an Iron butterfly on GOOG
And the Delta is almost 0 (1.3%)

upload_2020-4-17_16-45-51.png
 
Is this an ATM Butterfly? Shouldn't you be long/short at the same Strike? And there will always be a delta if the current Price isn't exactly the ATM Strike you have chosen, as the Delta moves with the Spot Price of the underlying
 
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Atikon said:
Is this an ATM Butterfly? Shouldn't you be long/short at the same Strike? And there will always be a delta if the current Price isn't exactly the ATM Strike you have chosen, as the Delta moves with the Spot Price of the underlying
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Indeed but the Delta is even greater this way.
1% is negligible I believe. Don’t know the Gamma.

But even with a high Gamma the Delta won’t move by much.

And it doesn’t reply to OP post ^^
 
Gamma is highest atm, I looked into the book op, where do you see the delta exactly? What page? Might be good if you post the image
 
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ValZ2020 said:
Hello guys, happy Friday to everyone!

Have a novice question here. In a book by Chen and Sebastian (Option Trader's Hedge Fund) they give a great example of how to structure an ATM Iron Butterfly. One thing that I'm struggling to understand is why the fly ends up being delta negative?

My understanding is that both short ATM call and put will basically offset each other for the delta, while the long OTM call will have a higher positive delta than the negative delta of the long OTM put. The OTMs are of course equidistant from the ATM strikes. So why is this position then net negative in terms of delta? What am I missing?

Many thanks!
More...

this what market makers call vol skew which represents the market bias...

if a stock is bullish, more people buy calls...therefore the call offer will be higher than the put offer, in other words, in order to achieve a true delta neutral strat, you may need to adjust the strike

and vice versa
 
ballsofgold said:
this what market makers call vol skew which represents the market bias...

if a stock is bullish, more people buy calls...therefore the call offer will be higher than the put offer, in other words, in order to achieve a true delta neutral strat, you may need to adjust the strike

and vice versa
More...

Why bother with adjustments when one can buy a delta neutral strangle by relying on Deltas rather than Sigmas ?
 
Sekiyo said:
Why bother with adjustments when one can buy a delta neutral strangle by relying on Deltas rather than Sigmas ?
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in this sense i was dumbing it down bc he asked about a conder not a strangle

i agree a strangle is a much better vol play than a condor, i think condors are useless

but that is not the point. the point here is that call-put parity per strike isn't even in price and delta if you have vol skew

so if you did a 25d strangle in ES, the put will have a higher price than the calls bc investors are natrual put buyers
 
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