Sorry, I wasn't clear when I referred to the 25:15 ratio. This is my own particular way of thinking about BWB's so it needs some explanation.
When I set up a BWB, or a DBWB, I look very carefully at the spacing of the wings. My preference, if it can be done, is to have a butterfly that looks like this:
SPX calls: 1150/1165/1190 for a credit... hopefully a decent one. This is currently 35 points out of the money, so it requires a decent move in order to be solidly profitable; otherwise, on a downside move,it is only a small profit.
With put side BWB's, it is easier to obtain good credits, and a person can be a bit further away from the money.
Notice the spacing, and thinking about a BWB as equal to two spreads-- the lower "debit" spread is 15 points wide (1165-1150), and the upper "credit" spread is 25 points wide (1190-1165). This is where the ratios come in. The maximum loss without any adjustments is 10 points, the maximum possible gain is 15 points if the SPX expires at exactly 1165 (the SET value) and the 25:15 is the ratio of the credit to the debit spread width.
This spread width is very important-- If the ratio is 40:15, the credit will be larger, but the risk is dramatically increased. If the ratio is 20:15, then you will most likely have a debit spread, with a loss over most of the range, which is not nearly so attractive.
When I set up a BWB, or a DBWB, I look very carefully at the spacing of the wings. My preference, if it can be done, is to have a butterfly that looks like this:
SPX calls: 1150/1165/1190 for a credit... hopefully a decent one. This is currently 35 points out of the money, so it requires a decent move in order to be solidly profitable; otherwise, on a downside move,it is only a small profit.
With put side BWB's, it is easier to obtain good credits, and a person can be a bit further away from the money.
Notice the spacing, and thinking about a BWB as equal to two spreads-- the lower "debit" spread is 15 points wide (1165-1150), and the upper "credit" spread is 25 points wide (1190-1165). This is where the ratios come in. The maximum loss without any adjustments is 10 points, the maximum possible gain is 15 points if the SPX expires at exactly 1165 (the SET value) and the 25:15 is the ratio of the credit to the debit spread width.
This spread width is very important-- If the ratio is 40:15, the credit will be larger, but the risk is dramatically increased. If the ratio is 20:15, then you will most likely have a debit spread, with a loss over most of the range, which is not nearly so attractive.