Destriero - Butterfly Trades

[ffs1001]

@.sigma , I've read Cottles' books, never used his software, but the cynic in me thinks it's just a trademarked fancy name for some custom software, to increase his revenue income. You can get it here for $1189 : https://www.diamonetrics.com/ or here for $849 https://riskdoctor.com/Diamonetrics_Java.htm.

I'm not in any way recommending it, and I doubt if many people use it. If it's just pricing flies you're after, then lots of normal software can do that (eg. Option Net Explorer). If it's something more unique, then it's possible to hire someone on Upwork.com to write a python script for less than $200 (I've actually done that twice) - the script can get the real-time mid prices for various strikes, and plot fly charts of them to give you a better visual picture.

Good luck.

 

[.sigma]

Jeez, a thousand greenbacks to place a diamond grid on a chart and for some risk profiles of various fly strikes... but hey we all gotta eat

 

[tsznecki]

Why wouldn't you use flies for breakouts? Do you mean breakouts to the downside? Because of the increase in volty? The thing is, stocks like TSLA have upside skew as well, so even a breakout to the upside can raise implieds (as you probably are aware).

Your post brings up a few important concepts.

You bought the fly originally for $10, saw it go to $16.. which is a 60% return on debit. Not bad, and not sure why you didn't put in a sell order. We all know $TSLA moves like a steppenwolf and its best to liquidate any type of decent profit if its in reach. Fly spreads are very volatile on stocks like Tesla.

Its funny you mention how the P/L graph is misleading on flies. I agree, but risk profiles of ALL option strategies are misleading. Terminal distributions should be used as a proxy for determining at what point you'll manage the spread for a profit or loss.

I advise all traders to take these risk profiles with a grain of salt. When you press order entry and review your trade.. remember that your Max Profit/Max Loss is an illusion. I call them PHANTOM RATIO's, as these numbers are just terminal P/L's that a trader will never witness. Thus its essential to take a percentage of the R:R and manage your fly early. I try to shoot for 25% and I'm out. I leave a fvck ton of money on the table but I can't worry about that.

I don't like flies for breakouts because my experience shows vol spikes into breakouts as you mentioned. The OTM body I'm short is now causing me gamma and vega losses. At some point vols will drop after the breakout but because you don't really know where the underlying will be relative to your body, this is a problem if underlying is not ATM at your body.

Re the TSLA fly: I was forecasting a body pin which would see the fly go north of 25. It's a trade call, nothing to do with fly structure.

Maybe it's just the way I trade ops, but I do actually take into account max loss. I'm usually long debit and not initially short gamma which is why. My rule of thumb for profits is no less than 50% of debit, but that's just me.

 

[ironchef]

Give some examples.

As of today,

Trade I placed on 12-8-20, just before my OP, trying out different bodies:

Trade I placed on 12-17-20, a week after my OP:

I moved away from butterflies on thinly traded options and focus on SPY butterflies because I found out with thinly traded, it was very difficult to exit my positions without taking a huge haircut from bid/ask. My bread and butter trades are still single leg directional. These are work in progress trades to allow me to collect statistics on expectancy, win rate, etc.

Did you pick up something from him that was not available in textbooks?

Short answer is yes. Textbooks don't tell you how to set up and manage your butterflies. Study his posts carefully and you will find your answer. Until I can collect enough statistics, the jury is still out as to whether I have a winning strategy. So far it is encouraging.

To my fellow amateur retails: Don't give up.

Happy New Year to all.

 

[ironchef]

As of today,

Trade I placed on 12-8-20, just before my OP, trying out different bodies:
View attachment 248292

View attachment 248293

Trade I placed on 12-17-20, a week after my OP:
View attachment 248289

I moved away from butterflies on thinly traded options and focus on SPY butterflies because I found out with thinly traded, it was very difficult to exit my positions without taking a huge haircut from bid/ask. My bread and butter trades are still single leg directional. These are work in progress trades to allow me to collect statistics on expectancy, win rate, etc.


Short answer is yes. Textbooks don't tell you how to set up and manage your butterflies. Study his posts carefully and you will find your answer. Until I can collect enough statistics, the jury is still out as to whether I have a winning strategy. So far it is encouraging.

To my fellow amateur retails: Don't give up.

Happy New Year to all.

Exited all three butterflies this morning, all profitable.

 

[cesfx]

Exited all three butterflies this morning, all profitable.

Well done, today I exited my first butterfly after being inspired by this thread.

how likely it is to have an early assignment on spy etf? and how early can it be?
I notice that premiums have better spread on spy than spx but I wouldn't want to manage unexpected assignment.

 

[Marcelino]

Exited all three butterflies this morning, all profitable.

Good for you but I think you simply were lucky SPY did not go down. That combined with some vol increase would have ended less rosy.
To me this doesn't look like a destry style fly. You were bullish while most of his flies are directionless and shorter.
Also your apparently excellent ROI of 35% gets diluted by the number of days so you end up with 1.7% per day. You could have exited in half time for roughly same ROI, but you pushed your luck. It worked this time.

 

[ironchef]

Good for you but I think you simply were lucky SPY did not go down. That combined with some vol increase would have ended less rosy.
To me this doesn't look like a destry style fly. You were bullish while most of his flies are directionless and shorter.
Also your apparently excellent ROI of 35% gets diluted by the number of days so you end up with 1.7% per day. You could have exited in half time for roughly same ROI, but you pushed your luck. It worked this time.

Excellent observation. Posts like your will suck me back to posting on ET again.

I don't want to be defensive and defend those trades. I posted them because someone asked for examples.

But let me explain: I never say I traded like @destriero, he inspired me to searched for my own profitably butterflies. I am a directional trader, these were indeed bullish directional trades. Did I get lucky? Perhaps but I was following a scrip and collecting statistics on the trades.

Finally, can you explain what is @destriero style fly?

Thanks.

 

[Marcelino]

All I can tell is most of his flies seem to be 132 type for less than 2 weeks till expiration that he closes in 2-5 days. Don’t remember him ever mentioning repairs.

How, when and why he chooses to place them is in the dark for me. I’m a visual guy and don’t speak Greek.

 

[BlueWaterSailor]

@.sigma - Here's an example of a fly not filling at nat. I've had an offer of 0.09 out for the past half an hour or so and have seen nat momentarily drop as low as 0.06; still don't have a fill.

Just tried it in TradeStation - same behavior.

P.S.: It filled about two minutes after I posted this. This is proof - proof, mind you! - that the lizard people are watching ET and are afraid of us. Powah to the People!!!