Wednesday night FLY marked at .0139 with /6e @ 1.1252.
Would like to see it chop a little here rather than make a strong run to 1.14.
Would like to see it chop a little here rather than make a strong run to 1.14.
Butterfly Option Trades
- Thread starter El OchoCinco
- Start date
1.1363 today on another spike so not chopping as I would have hoped. I might take the tiny profit and re-evaluate....
Position update below in chart. REMEMBER the chart is created for example 1/2/1 FLY not for my actual position. Euro in upper ranges of FLY profit zone so another burst higher will require adjustment or close. With 3 weeks to expiration, I would most likely close. Euro /6E @ 1.1344
In a desire to restore the glory of option discussions that I once enjoyed very much at ET I shall, in light of Baron's recent efforts, be part of the solution, not the problem. So this is going to be a Journal/Open Discussion on Butterfly Option trades.
I do not trade these 100% in my account, they are one of many strategies. Therefore I will not post any running P&L because this is not all I trade. The purpose is not to impress with an ability to make money but put on real trades and open up discussion.
All my trades discussed are done in my real account, I do not vag paper trade. If pressed I can post the ToS transaction screenshot but I would rather not. I will not post size because these are scalable for whatever you want. If you are a BSD and want to do 300 FLYS...go for it. If you are a newbie and want to test the waters, do 1 FLY.
FLYs are not day traded so do not expect a new position daily and when one is put on, do not expect it to profit right away. If you are impatient or a day trader, FLYS are definitely not for you.
Anything not involved with FLYs I will discuss in chat but not here. In order to set the right tone I will ask Baron to assist me in keeping this from becoming a Chit Chat journal. All input on option trades are welcome, I am not looking to be the only one posting trades but if you post a trade you have to close the trade at some point please. Otherwise it is not fair. Anyone else is welcome. Certain people will not be welcome.
FLYS take time to profit but are a wonderful way to trade a range or bias with smaller risk than outright futures. My main focus is on futures on indexes, crude and currencies but I prefer the ones with weeklies. A small subset can be calendars.
amen brother and good on you for the positive journal. I like the no vag paper.
Closed my FLYS @ .0126 for 11 pips ($137.50 per FLY, i.e. 5 FLYS = $687.50 10 FLYS = $1,375 etc..).
/6E broke down through 1.1300 early this morning and was hoping it would churn between 1.12 and 1.13 where FLY would have pushed towards .0150 but EURO looks like another run at 1.14 and rather take even the tiny profit here with so much time left to expiration. Vols were relatively low when I bought this so my only bank was on theta and churn but starting to see to much support above 1.13 and with 3 weeks left.
Tiny profit but walked away with one.
If you trade FLYS you know it is a lot of singles and doubles, occasional triple and a very rare home run.
Option, if you traded as a straddle instead of as a fly, how much downside risk to your equity would you take if the EURO rallied 100%?
Well I am not sure Euro would rally to 2.24 haha.
I definitely would have been more nervous when /6E hit 1.1370 but the straddle had a wider profit zone than the FLY. Basic risk/reward of options, -straddle has wider profit zone and higher profit peak but more risk, FLY is defined risk but smaller profit zone. I have to admit since I bought this prior to fed I was risk averse doing the straddle in this case.
I definitely would have been more nervous when /6E hit 1.1370 but the straddle had a wider profit zone than the FLY. Basic risk/reward of options, -straddle has wider profit zone and higher profit peak but more risk, FLY is defined risk but smaller profit zone. I have to admit since I bought this prior to fed I was risk averse doing the straddle in this case.
I guess the point of my question is how big are you trading that you are willing to give up edge in buying the wings. There can't be any scenario where the wings earn more than the body loses but if the overall structure allows you trade larger size, is that worth it.
I rarely trade butterflies. I mostly trade straddles (largely on the short side) but the notional of the book rarely exceeds my equity - and if it does, never more than 2x.
I think the big issue is I put this on before the FED and had no problem giving up a little profit zone for the safety of the wings. I never EVER look at maximum profit because you rarely hold a FLY or short straddle all the way into expiration and expect to pin the middle strike...just not realistic.
I do not see buying the wings as giving up edge, it is pure risk management and controlling the position margin allowing me to do greater size in the FLY than I would in the straddle. This in turn lets me take smaller profits more comfortably. Do not overlook the margin v. risk aspect of being able to withstand a huge price swing in a FLY with much smaller losses in exchange for having to wait a little more for profit to develop in the FLY.
To me it is not a question of edge or right or wrong, it is how comfortable are you in the situation. I still do naked straddles on vol events but more FLYs because I am very comfortable giving up some profit zone in exchange for a bigger safety net which lets me trade bigger and longer.
But in the end it is more preference than right way versus wrong way so I would not say your view is incorrect, just maybe more in line with your trading preference if that makes sense.
I do not see buying the wings as giving up edge, it is pure risk management and controlling the position margin allowing me to do greater size in the FLY than I would in the straddle. This in turn lets me take smaller profits more comfortably. Do not overlook the margin v. risk aspect of being able to withstand a huge price swing in a FLY with much smaller losses in exchange for having to wait a little more for profit to develop in the FLY.
To me it is not a question of edge or right or wrong, it is how comfortable are you in the situation. I still do naked straddles on vol events but more FLYs because I am very comfortable giving up some profit zone in exchange for a bigger safety net which lets me trade bigger and longer.
But in the end it is more preference than right way versus wrong way so I would not say your view is incorrect, just maybe more in line with your trading preference if that makes sense.
How are you defining notional here?
To my knowledge it would be:
[# of contracts (long or short)] x [point value] x [strike]
However, that appears to be a somewhat abstract risk measure. Not a criticism, I'm genuinely curious and feel that I'm missing something. Thanks.