Destriero - Butterfly Trades

Bomp · Dec 30, 2020

Lets take a look at TESLA as it has high IV and probably has ton of IV curve craziness given the retail activity no this stock.

Put Flies from mid taken from Yahoo Finance

Fly 650-655-660 price is -27.500000000000213 with max payout of 472.4999999999998
Fly 655-660-665 price is 2.500000000000213 with max payout of 502.5000000000002
Fly 660-665-670 price is -12.500000000000178 with max payout of 487.49999999999983
Fly 665-670-675 price is -40.000000000000036 with max payout of 459.99999999999994
Fly 670-675-680 price is 10.000000000000142 with max payout of 510.0000000000001
Fly 675-680-685 price is -29.999999999999716 with max payout of 470.0000000000003
Fly 680-685-690 price is -20.000000000000284 with max payout of 479.9999999999997
Fly 685-690-695 price is -19.999999999999574 with max payout of 480.00000000000045
Fly 690-695-700 price is -2.5000000000005684 with max payout of 497.49999999999943
Fly 695-700-705 price is -27.499999999999503 with max payout of 472.5000000000005
Fly 700-705-710 price is -22.500000000000142 with max payout of 477.4999999999999
Fly 705-710-715 price is -17.499999999999716 with max payout of 482.5000000000003

The IV Curves

Clearly the 670-675-680, and 655-660-665 are out of whack if you are able to execute at mids. From the IV chart you can see the culprits are 670 strike, and the little bump after the 655 strike.

I build this script on the fly(no pun intended) so I hope its accurate. I did check a couple with my Schwab Prices though.

BlueWaterSailor · Dec 30, 2020

Overnight said:
...Your life cycle will be complete.

COOL!!! Since we're talking butterflies...

So excited! Can't wait.

BlueWaterSailor · Dec 30, 2020

Bomp said:
Clearly the 670-675-680, and 655-660-665 are out of whack if you are able to execute at mids.

Yeah, that would be the sticky wicket.

I recall destriero mocking someone because they had no idea of how to get good fills (which sent me off to learn how to do that, and has put a metric assload of money in my pocket since then), but other than legging in - which seems more like a coinflip than a learnable skill - I can't think of a way to get better at it with flys. If anybody has ideas in that direction, I'm all ears.

@Bomp - what did you use to do that analysis? I've been cranking stuff out in Python/Jupyterlab/Databricks CE/etc., but that looks like a somewhat handier tool for the job.

Bomp · Dec 30, 2020

BlueWaterSailor said:
Yeah, that would be the sticky wicket. I recall destriero mocking someone because they had no idea of how to get good fills (which sent me off to learn how to do that, and has put a metric assload of money in my pocket since then), but other than legging in - which seems more like a coinflip than a learnable skill - I can't think of a way to get better at it with flys. If anybody has ideas in that direction, I'm all ears.

@Bomp - what did you use to do that analysis? I've been cranking stuff out in Python/Jupyterlab/Databricks CE/etc., but that looks like a somewhat handier tool for the job.

All done in python/jupyter lab. Just built some classes to price different strategies. Have to rely on Yahoo Finance, wish I had better data for options though.

.sigma · Dec 30, 2020

Bomp said:
Technically when you trade flies your trading probability..

as if 2020 wasn’t any less clearer, but I hate to be the bearer of bad news... but probability is an illusion. It doesn’t exist.

whoops

.sigma · Dec 30, 2020

BlueWaterSailor said:
COOL!!! Since we're talking butterflies...

So excited! Can't wait.

I thought I was the only one, but I’ve been studying the butterfly. Lepidopterra I think is what they are called.

Single strike butterflies are called caterpillars

Fly spreads with DOTM wings are called swallowtails

I’ve been dabbling in euclidean geometry too, since the markets are literally FILLED with geometric patterns, the fly spread is no different. It represents a triangle obviously. But one thing that’s interesting is the angles of the triangle. Think of the risk profile of a butterfly, the body lines, what degree are they slanted? Then you realize by skipping strikes and ratio’ing the wings the degree will decree and now your entire spread has a different risk/reward.

.sigma · Dec 30, 2020

#GEOFLIES

.sigma · Dec 30, 2020

.sigma · Dec 30, 2020

BlueWaterSailor said:
I'm not sure how that would work... de la Vega was a contemporary reporting what he saw (albeit in somewhat flowery language), and we have no written record of "prior art" (except the Thales of Miletus / olive presses story.)

But as is often the case with history, there's no "proof" - only preponderance of evidence.

yeah, we can only speculate. But you made a great point. De la Vega was a contemporary reporting. So if he’s writing about the things he’s seeing that means these things exist. Did these things start existing the day of his observance? Most likely not, the markets he observed and speculated in were there already. So the establishment already had a market. Pretty advanced as well, once they realized to centralize the market into a building that’s when Antwerp Bourse came about. But I think the roots of the markets span back even to the 1400s. I’m talking about options on stock (joint stock companies), not Thales harvests. The concept of optionality goes back probably when man was mush in the mud, it’s a universal concept for us monkeys, trading goods and services.

Pure speculating though, I’m still digging and researchin seeing what I’ll find, but this topic is fascinating.

.sigma · Dec 30, 2020

I also wanted to ask you guys, does anyone know anything about Charles Cottles chart software? It’s called Diamonetrics, and it looks like he was pushing it around the time he published his two books (must reads, seriously.. probably the best books on optionality, way better than boring Naterberg).

here’s what it looks like

Looks like you can use it on thinkorswim? But I don’t see it in the studies section?

You can customize it, but it’s basically a diamond grid that is overlay’d on any chart.

also, look at this:

This is a spreadsheet/software that prices butterflies of all variants. I NEED SOMETHING LIKE THIS. I Know the elites around here have something like this, but I’m also curious if this software is still even available to the public?