a new addition to my trading.. broken wing flys... basically ratios with protection.. a great way to limited risk short premium.. being as it options are often priced right.. sometimes you can take a lower risk otm trade with less margin and a great risk to reward by breaking wings..of course you can get hurt but in a limited way.. and the payout is not as limited as iron condors and credit spreads.. you can take direction risk this way without such a high pang when your wrong about direction..
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best ways to go long/short volatility...
- Thread starter cdcaveman
- Start date
Quote from rocky_raccoon:
Yes. Sold to open for 2.66 and bought back for 2.46. It became even cheaper several days later.
selling a fly is buying volatility if its at the money....your basically buying a straddle but limiting the profits.. -1/+2/-1 maybe not a bad idea if the outright straddle is expensive dollar wise.. meaning is to much of a position size for your account.. i've actually brought that up before.. you basically gamma scalped ... selling right before a jerk in the underlying will draw down the fly and help you to buy it back at a profit..
Quote from cdcaveman:
selling a fly is buying volatility if its at the money....your basically buying a straddle but limiting the profits.. -1/+2/-1 maybe not a bad idea if the outright straddle is expensive dollar wise.. meaning is to much of a position size for your account.. i've actually brought that up before.. you basically gamma scalped ... selling right before a jerk in the underlying will draw down the fly and help you to buy it back at a profit..
I am selling Iron 'Fly (+1P/-1P/-1C/+1C), not buying it.
Selling IB is <u>selling</U> volatility as IB is short vega. However, that is not the whole story. The position may become profitable even if the IV of the puts increases. This happens when SPY goes down quickly and then bounces off the bottom. I've seen it in Aug cycle.
There are to ways this position becomes profitable in a short term: SPY goes down by about $1 within 2-3 days or it stays flat. If it goes up then the position loses temporarily until there is a pull back or enough time passes or both .
Quote from rocky_raccoon:
I am selling Iron 'Fly (+1P/-1P/-1C/+1C), not buying it.
Selling IB is <u>selling</U> volatility as IB is short vega. However, that is not the whole story. The position may become profitable even if the IV of the puts increases. This happens when SPY goes down quickly and then bounces off the bottom. I've seen it in Aug cycle.
There are to ways this position becomes profitable in a short term: SPY goes down by about $1 within 2-3 days or it stays flat. If it goes up then the position loses temporarily until there is a pull back or enough time passes or both .
No big deal but our communication is bad..buying a butterfly has always meant +/--/+ two short contracts as the body... everyone I know and every where I've read puts it that way... I know its counter intuitive but its the deal buy the position (butterfly)...or sell the position. The position is butterfly iron or all calls or all puts same terminology
To me "buying" means a debit transaction while "selling" a credit one. Hence, call or put 'flys are "bought" and iron 'fly is "sold" to open a position.
Quote from rocky_raccoon:
To me "buying" means a debit transaction while "selling" a credit one. Hence, call or put 'flys are "bought" and iron 'fly is "sold" to open a position.
ahh i see.. i've never opened a iron fly position.. if thats the deall thats the deal.... i wouldn't ever say i bought a credit spread... you sell credit spreads.. buy debit spreads... double negatives are a bitch.. kinda werid you would sell an iron even though its almost the same thing as with just calls or puts.. sure it acts a little difference because of the different pricing of the puts to the calls.. but doesn't put/call parity make it about the same?
Quote from atticus:
He means selling as the iron puts a credit in your account. It's best to describe a fly as either long or short gamma.
hmm.. i get it.. i need to read more about this.. i remember reading about something related to delta hedgin or gamma scapling with butterflys i forget though.. in that baird options market making book..
i still get a little mixed up especially once i get to second order greeks and beyond.. of course i get gamma.. ..
interesting find.. i hear more about this strike pin from the grave yard..
http://www.elitetrader.com/vb/showthread.php?s=&threadid=175858&perpage=6&pagenumber=5
http://www.elitetrader.com/vb/showthread.php?s=&threadid=175858&perpage=6&pagenumber=5
Quote from atticus:
There is nothing magical about gamma-trading into a fly. The position ceases to generate deltas at the wings, so it's not as though the diminished theta (over a straddle) somehow increases the expectancy.
I know a guy at the Nymex who made millions over the years in long vol and scalping gammas. In 2008 he went in huge (Ks of contracts) on a long atm CL straddle when vols were in the top decile. He was confident the vol would continue to break out. Not only did he miss many scalps by pennies, but the contract pinned to his straddle-strike at expiration, taking him out of the game.