Destriero - Butterfly Trades

[.sigma]

Thank you .sigma, very helpful. I thought it meant asymmetrical by being short upside skew.

I'd like to add that although a symmetrical natural fly (+1/-2/+1) has risk on both the upside and downside, there's a distinction one should be aware of.

Example: 105/110/115 call fly. If spot closes below 105, the entire call fly will expire worthless, obliterating your debit. But if spot closes above 115, you potentially have assignment risk, which is why its prudent to manage butterflies. So while yes theres risk on both sides, theres a different type of risk on the upside compared to the downside.

Hope this helps.

 

[OptionsOptionsOptions]

please elaborate what you mean by “buying the ITM option at a major discount, much lower than intrinsic vAlue”?

There’s always a caveat in a trade, so what steps did you take in choosing which strikes guts you’ll short?

• Looking at the standard +1,-2,+1 fly with the guts 1 strike OTM.
• The price target is the short options.
• The profit comes from the ITM option.
• Total cost of the fly is lower than the intrinsic value of the ITM option.
  
• If you buy just the ITM option it will cost you much more than the fly.

That's how I visualize the standard +1,-2,+1 fly.

 

[cesfx]

I'd like to add that although a symmetrical natural fly (+1/-2/+1) has risk on both the upside and downside, there's a distinction one should be aware of.

Example: 105/110/115 call fly. If spot closes below 105, the entire call fly will expire worthless, obliterating your debit. But if spot closes above 115, you potentially have assignment risk, which is why its prudent to manage butterflies. So while yes theres risk on both sides, theres a different type of risk on the upside compared to the downside.

Hope this helps.

Thank you .sigma
I am not so brave when it comes to risk and margin play and that's why I like what I am learning here.
For strategies and trades where I could be assigned, I will mostly use european style options like spx, or future options.

I also understand, after reading plenty on et, that ideally (and probably satistically) a fly is better covered for a % of gain before expiry, unless the set-up didn't work out and the only hope left is the probability or return inside the wings. Understanding this made me reconsider the value of butterflies.
I will definitely do my best not to risk assignment and if I take that risk on any american option I will make sure I have plenty of margin to cover it.

I am now simulating to get a feel of the belly and its position (or skew?) pre-expiry, so that I can choose better what type of fly to use on different market circumstances and expectations.

 

[murphmack]

Hey guys, I've experienced some pretty good success fading volatility. After reading this thread and a few dated ones on ET, I decided to dip my toe into flies.

I'm wondering if anyone on IBKR has difficulties getting fills? Or if it is normal to not be able to get fills at midpoint. Really I'm trying to get a feel for the mechanics and what to expect for execution before I really try to do any volume.

Perhaps the SMART router isn't the best for executions? I usually get super quick fills on diagonals when I am rolling, but haven't seen any action on anything greater than 2 legs.

Thanks.

 

[deltaf0rce]

Hey guys, I've experienced some pretty good success fading volatility. After reading this thread and a few dated ones on ET, I decided to dip my toe into flies.

I'm wondering if anyone on IBKR has difficulties getting fills? Or if it is normal to not be able to get fills at midpoint. Really I'm trying to get a feel for the mechanics and what to expect for execution before I really try to do any volume.

Perhaps the SMART router isn't the best for executions? I usually get super quick fills on diagonals when I am rolling, but haven't seen any action on anything greater than 2 legs.

Thanks.

Co-signed. I wonder jsut on curiosity if you need to jump on the phone to get any real size done.

 

[BlueWaterSailor]

I'm wondering if anyone on IBKR has difficulties getting fills? Or if it is normal to not be able to get fills at midpoint.

I'm not the most experienced fly trader here, so take it for what it's worth - but IME, getting good fills on flys is tough; you're not going to get filled at mid unless price/vol swing in your favor. When I was doing 0-day IFs on SPXW.X, my close order normally wouldn't fill until the price went 0.05-0.10 past nat. I'll never forget the time that it actually hit nat, didn't close, and then spiked to hell and blew me out at 3R.

 

[.sigma]

Which product are you guys trading? I mean if the underlying is illiquid then yes you'll have problems, especially with wide B/A spreads.

If you aren't getting a fill try moving your limit order up a few cents and let it sit and see.

 

[.sigma]

I'm wondering if anyone on IBKR has difficulties getting fills? Or if it is normal to not be able to get fills at midpoint. Really I'm trying to get a feel for the mechanics and what to expect for execution before I really try to do any volume.

Maybe give an example on what you're trying to trade??

Also are you trading a regular fly? or an iron? Remember the iron fly has 4 legs, while the natural has 3. With that additional leg, we can view the iron fly as a long fly + short box. The short box is the reason the iron fly RECEIVES a credit. The short-box adds a cash loan from the market.

If you're having trouble filling a fly try and fiddle around with the B/A spread. Take a percentage of it, say 5%. Lets say the B/A spread is 2 bucks, 2.00x0.05=0.10. So try not to pay no more than .10 over the quoted mid-price. This is just an example, but as you trade more of these you'll find what works for you. Try to trade the most liquid products, you should be really just trading $SPY $QQQ $IWM for now.

 

[deltaf0rce]

I'm not the most experienced fly trader here, so take it for what it's worth - but IME, getting good fills on flys is tough; you're not going to get filled at mid unless price/vol swing in your favor. When I was doing 0-day IFs on SPXW.X, my close order normally wouldn't fill until the price went 0.05-0.10 past nat. I'll never forget the time that it actually hit nat, didn't close, and then spiked to hell and blew me out at 3R.

In April I put a zero day fly out market order SPX got nothing done.

 

[.sigma]

In April I put a zero day fly out market order SPX got nothing done.

Huh? even a market order didn't get filled? What was the fly (strikes?) and at what time did you place the order (morning?)