Double Broken Wing Butterfly

Quote from Teycir:

I don't risk the "1 trade wipe out all profit of the year scenario" of short Iron condor players.
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what do you mean exactly?

if your first trade of the year returns 15% return on risk, then do you start putting on trades that do not risk losing that first 15% that you just made?

so you basically start trading with the house money once you make your first profits?

or are you saying that short IC players risk their whole account on one trade because of their high probabilities?
 
When I played Iron condors, when price moved too far from the center, I had to close at loss, if i hold position and hope the price retraces I take huge risks, especially close to expiration.
Now when I use the double broken wing fly, if the price stays at the center (flat), I lose a tiny little bit of money if it moves away from the center, I make money, if it goes too far I still have profit if I close my position.
I stopped doing IC because I cannot exist safely (taking small loss) in case of nasty whipsaw of the price, which can be done with double broken wing fly.
 
Quote from Teycir:

When I played Iron condors, when price moved too far from the center, I had to close at loss, if i hold position and hope the price retraces I take huge risks, especially close to expiration.
Now when I use the double broken wing fly, if the price stays at the center (flat), I lose a tiny little bit of money if it moves away from the center, I make money, if it goes too far I still have profit if I close my position.
I stopped doing IC because I cannot exist safely (taking small loss) in case of nasty whipsaw of the price, which can be done with double broken wing fly.
More...

How far away do you place your short strikes on your double broken flys?
 
I tend to close before expiry if I'm too far from "the sweet spot", and hold more if I'm within the center of the "sweet spot", the area where my short legs are.
Here a risk graph, at expiration and just before expiration for May NDX double broken wing fly.
http://i40.tinypic.com/34fnqms.png
http://i39.tinypic.com/a3dwyw.png
You can tighten the wings and increase the size if you are more risk tolerant and want more profit. But I tend to enter a trade assuming that in each trade there will be a risk of a market crash or a huge rally like we've seen Jan - Marsh on NDX.
My philosophy is to not loose money, at any cost. I'm more worried about the loss than the profit.
 
Thanks for the pics. I've considered trying something like this out. I've traded SPX and RUT but not NDX yet. How many weeks/months prior to expiration do you like to put on the trade?
 
Teycir, it looks like your NDX is working out pretty nicely for May expiry thus far.
Are you still in it? I'm curious when you make adjustments. I have used the broken wing butterfly and its cousin the unbalanced condor, and I find it works out much better than IC due to the long calls and puts on the "inside" of the position which gain in value as the underlying moves and helps to negate the losses which might arise from the sold calls and puts.

I use the SPX, because it allows fine tuning adjustments because of the small increments. There is a slippage problem some of the time. I would prefer the NDX if it had 10 point increments across the board. That would be ideal for my trading purposes.
 
I don't adjust, if I come close to a dangerous area, I reset my position entirely. Better loose a profit opprtunity than get a loss.
 
Teycir
One of the tricky things about broken wing butterflies is that the really profitable zone is right beside where the danger begins to develop.

So if you have (put side only) a 2700-2650-2550 NDX butterfly right now at NDX=2680, you might be moderately profitable with a week to go, but only 30 points away from your short strike. I realize that the timing of the movement is absolutely critical to making maximum profits. You obviously (in the example above) would like the NDX to approach 2650 slowly and be a bit further away with a week to go. In this case the call side can probably be closed already or has been, but I'd be a little nervous. If the NDX was 50 points from my short strike, I'd feel a little more comfortable.


Would you just take a little profit here and set up for June expiry?
 
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