BWB questions

mysticman · Sep 1, 2006

Quote from daddy'sboy:Bring the long far otm strike closer to the body. You need to keep in mind that the BWB risk graph shows the risk at expiry and may be a bit misleading since it is model dependent and option models are far from perfect.

If he brings in that otm strike then he's got a standard butterfly -- at least in the example we're working with, and that wouldn't work.

Option models are not perfect, but they are pretty close to it, except in certain known cases and this doesn't seem to be one of them. Recently some supposedly knowledgeable option people are saying that models don't work on the BWB. When and why? They don't say. If you know more then please tell us. From what I know, if option models don't work on the BWB then they don't work on single options either. Make sense?

daddy'sboy · Sep 1, 2006

Quote from mysticman:

If he brings in that otm strike then he's got a standard butterfly -- at least in the example we're working with, and that wouldn't work.

Option models are not perfect, but they are pretty close to it, except in certain known cases and this doesn't seem to be one of them. Recently some supposedly knowledgeable option people are saying that models don't work on the BWB. When and why? They don't say. If you know more then please tell us. From what I know, if option models don't work on the BWB then they don't work on single options either. Make sense?

I'm afraid I don't know more - all my knowledge (and there isn't much, I'm afraid) has been recorded in this thread (and, like you, I visit scott kramer's forum at optionetics). As I said at the start of this thread, I'm still learning and tinkering with this particular strategy and was hoping to pick up some useful stuff here, but so far, no luck. It appears not many on ET make use of the BWB or at least don't share if they do.
When I said move the strike closer I also meant closer than the debit spread one, assuming there is enough separation to start with (I think you mentioned that a while ago in another thread), but then it becomes a debit fly.
Best
Daddy's boy