Quote from marameo:
Does it have to be an iron fly? How about put-only-fly or call-only-fly?
I assume bid/ask spread plays a major role when it comes to open/close the trade. Also, commission will affect any profit/loss; say I want to trade 250 of those flies, that's $1k fees just to open the position (I assumed $1 per option).
Quote from rocky_raccoon:
According to the guy who taught me, iron is the key due to different behavior of OTM calls and puts. Plus liquidity is better (.03-.04 spreads are common). Commissions are a big factor, of course. He uses OptionHouse where 250 IBs would cost $162.5. (15c/contract + $12.5). That means a break-even point is less than 2c away from an entry price.
I tried this trade with TradeMONSTER (50c/contract).
Quote from newwurldmn:
You can't practically speaking take on vol risk without taking on some gamma risk. Vol is really a fixed/floating swap where you buy or sell the fixed rate (implied vol) and receive/pay the floating rate (realized vol).
If yout think vol will go up then you expect the market to either realize more vol or agree with you. Why would you sell any options into that. Your potential pnl is unlimited.
With regards to butterflies and short vol, marti is right. It takes a lot more time to make money because of the pin to expiry. But my personal experience has been that protection from gap risk outweighs this issue.
If you are only looking for implied vol moves, you will probably be dissatisfied with your returns. Bid/offer and the requirement of more complex structures to get you gamma flat will require larger positions and the understanding of other risks (term structure, skew, etc).
Quote from marameo:
I will defenitely paper traded in several forms; put, call and iron flies. I assume the 5 point wide wings is also crucial?
Anyway, I was having a look at SPY options (are they european style?) where an atm long put fly 1-point wide is about the same price both on sep and oct options.
SEP12
(+p143-2p144+1p145 = 0,16 debit market price)
Quote from marameo:
So, I could be be exercised if the fly goes itm along the way?