Double Butterfly spread

i960 said:
IMO I wouldn't even try to worry about that angle. It's too derivative and likely not something you'll be able to easily model or control.

There are spread options on calendars, they're called CSOs. I do know ICE has options on the WTI/Brent spread as well. As far as hedging them, I'd imagine a seller would be looking to hedge deltas by using the underlying spread itself. Not even remotely sure how you'd make long or short vol plays other than measuring and observing IV on the underlying spread somehow.
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Agreed... No options on CL calendars then no deriving any outright long vol on the spread as it goes directionally both ways ireelative of vol... Just was thinking out loud...
 
Wingz said:
My biggest profits come from 1vs6 month combinations. Why? For a few reasons, theyre relatively cheap, 1 vs 6 is only 1/6 more expensive than putting on a straight spread trade. A fly would be twice as expensive as a straight spread and a double fly (entered with 2 fly trades) 4 times as expensive.
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Why are they only 1/6th more expensive?
 
cdcaveman said:
no one said anything about volatility , but me.. i was just bringing it into the conversation... Obviously the farther you get away from the front the vol goes down in a general sense.. but i was curious how one would define volatility in any respect relative to this kind of trading... take for example a zm spread which is obviously 6 months.. this spread is going to be some x number of hj's inside the spread.. what coefficient do you set up to set some equalization of the two spreads.. He was saying 6x ... i asked him about how he built that function.. i never got a very quantitative response.. it begged the question about volatility... volatility is a function of time to maturity but not in the typical sense as you can't short volatility in a typical sense .. like you can short a front month spread , and be short volatility .. . you get exposure to more volatility in your trade if you are closer to the front.. but there is no way to construct a purely long volatility play with futures... volatility and extremely volatile events create dislocations and these are the ones i trade.. i have never figured out how to directly profit from a any sort of "long" volatility play.. just react to volatility as it comes into the market.. i'm strictly talking futures here..
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When you get into a fly you buy and sell an equal number of spreads. Going long a 6 month spread is the sum of going long six 1 month spreads, you could build it that way by buying each month individually but then you'd be paying more commissions. So in order to hedge that you need to equivalently sell 6 lots of a 1 month, that's all it is, you just need your exposure to be equal.


Also I only talked about momentum in reference to legging into a trade to improve execution edge.


mmt

Based on a 6 lot trade. Getting into a spread will cost 6 roundtrips. Getting into a 1 month fly will cost 6 roundtrips to get into 1 leg and 6 for the other leg. Getting into a 1v6 combo will cost 6 roundtrips for the 1month and 1 roundtrip for the 6 month - so an extra roundtrip, or 1/6th more expensive than a straight spread trade.
 
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Wingz said:
When you get into a fly you buy and sell an equal number of spreads. Going long a 6 month spread is the sum of going long six 1 month spreads, you could build it that way by buying each month individually but then you'd be paying more commissions. So in order to hedge that you need to equivalently sell 6 lots of a 1 month, that's all it is, you just need your exposure to be equal.


Also I only talked about momentum in reference to legging into a trade to improve execution edge.


mmt

Based on a 6 lot trade. Getting into a spread will cost 6 roundtrips. Getting into a 1 month fly will cost 6 roundtrips to get into 1 leg and 6 for the other leg. Getting into a 1v6 combo will cost 6 roundtrips for the 1month and 1 roundtrip for the 6 month - so an extra roundtrip, or 1/6th more expensive than a straight spread trade.
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an astute post along with your talk of 'execution edge'. There is a lot to be said about execution edge. The use of an autospreader of course allows you to set your entry price, you don't always get what you want you might get partials/overfills/legged. Legging manually allows you to 'utilise' a favourable queue position which an autospreader by definition doesn't as it is continually pulling orders and reworking.

GL
 
londonkid said:
an astute post along with your talk of 'execution edge'. There is a lot to be said about execution edge. The use of an autospreader of course allows you to set your entry price, you don't always get what you want you might get partials/overfills/legged. Legging manually allows you to 'utilise' a favourable queue position which an autospreader by definition doesn't as it is continually pulling orders and reworking.

GL
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So In some sense leaving a bid for a spread out can order you in a que such that when the price gets around your price your more likely to get filled
 
cdcaveman said:
So In some sense leaving a bid for a spread out can order you in a que such that when the price gets around your price your more likely to get filled
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Yes an autospreader will put you in a queue but as it works your price it will likely not be at the front. You would never use an autospreader to get queue position. Leaving a limit in a leg gets you queue position. In addition I believe autospread orders can only be day orders and stand alone orders can be gtc.

An extreme example of queue position might be placing orders in the book 30 ticks off market in something thick like schatz. When it comes towards your price you have an advantage. (advantage not edge).
 
londonkid said:
Yes an autospreader will put you in a queue but as it works your price it will likely not be at the front. You would never use an autospreader to get queue position. Leaving a limit in a leg gets you queue position. In addition I believe autospread orders can only be day orders and stand alone orders can be gtc.

An extreme example of queue position might be placing orders in the book 30 ticks off market in something thick like schatz. When it comes towards your price you have an advantage. (advantage not edge).
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This is how I figured it was... I thought in worry maybe a market maker or there was a way to jump que by hft or something.. As I leave lmt orders out for weeks sometimes
 
londonkid said:
an astute post along with your talk of 'execution edge'. There is a lot to be said about execution edge. The use of an autospreader of course allows you to set your entry price, you don't always get what you want you might get partials/overfills/legged. Legging manually allows you to 'utilise' a favourable queue position which an autospreader by definition doesn't as it is continually pulling orders and reworking.

GL
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I've never used an auto spreader before but I can see certain situations where I'd prefer it, I think I've got it in my front end included. If nothing else I can spend less time in front of the screens.
 
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