Destriero - Butterfly Trades

Same Lazy Element said:
....YOLO ..
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naruto.jpg
 
destriero said:
I dunno if that's true.
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Hey, you're still here! Good to see it. :)

The kind of thing I'm thinking of is what newbies get introduced to by the likes of TastyTrades, OptionAlpha, etc.: 16D body strikes in low-volatility underlyings 45-60 days out, $1-$2 wings, close them at 3 weeks out. Booooring... but risk-defined and usually closed for a profit. And hey, it "proves" that YOU TOO can make money! There are tons of "options gurus" fishing for retirees, and this seems to be their favorite bait.

I can generally tell how something is structured in a ticker with nothing other than a vega and theta figure.
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Man... some day. This is exactly the kind of thing I'm so envious of.

You'll never earn a double in short gamma shorting wings. It's impossible. Can you hit doubles, triples, etc. in long natural flies and other verts? Sure, but they need to be OTM at inception. Neutral to long gamma trading short gamma as spot trades ITM.

$n theta in a weekly IC vs $n theta in a monthly IC is swapping gamma for vega. I'd generally rather be short the monthly in case index prints an inside day and your run shows that you earned 5-10x your theta figure. Hard-pressed to see those opportunity gains in a weekly structure. Not to say it's impossible, but rare. The gains in weeklies or dailies (trading LTD) are likely replicable in spot.

As I get older I have moved into 4-8 week expirations in much larger size. Infinitely better liquidity.
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F*ck me raw, another textbook worth of options learning from @destriero in compressed format. Here goes another evening's worth of studying...
 
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Ironplates said:
https://www.ruffnerwakelin.com/obituaries/Timothy-A-Morge?obId=17989083
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@Ironplates

Dude, you gotta plant at least ONE tree! Blackthorne Capital, at Tim's death, had less than $4K in assets (zero billions there), and according to the lawyer that Tim's family is using, Tim Morge had not placed a single trade in a decade! Those 8 brokers, trading around the clock, NEVER existed!!!

Outstanding con job, I must admit, involving the CME, IB, University of Chicago, Stanford, MIT, Amos Hostetter, Commodities Corporation, Queen Elizabeth, etc. And fund clients like Steve Jobs, Michael Dell, Saudi Royal family, and close friends like Stanley Druckenmiller, Richard Dennis, etc. You get the point; all fabrications...
 
.sigma said:
Just saw this thread, lets get some examples flowing.

I've been trading and studying the fly for a year and a half/two years. IMO, its one of the most efficient structures you can accumulate in your book. Not only is the butterfly an optionality-play, one can use its structure to measure the convexity of the vol surface, and there's even a harmonic pattern called the butterfly.

Here's what we know:

+1/-2/+1 (natural)
+1/-3/+2 call fly
+2/-3/+1 put fly
+2/-5/+3 call fly
+3/-5/+2 put fly

Also the broken-wing'ed (skip-strike) variant of the above spreads (as well as the iron)

Now for the 132/231 this refers to leg size, the only difference is call/put.

To quote Desty, "put and call flies (132 put and call flies) are equivalent. I typically go with a 2/1 ITM to body strike-width natural due to microstructure, but they are equivalent.".

So when we develop a heuristic method for spotting anomalies within the vol-space, you can utilize that opportunity via a fly spread. The variant is chosen based off the opportunity presenting itself (usually vol-skew). The vertical skew will show some higher juiced OTM premo, thus the 132/231 come into play.
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Someone been keeping notes. Nice post
 
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