Eurodollar spreading

Double butterfly, as defined below

"
Double Butterfly
… combines four Quarterly GE contracts with equally distributed delivery months. It’s useful to imagine a
double butterfly as a calendar spread between two conventional butterflies, in which the second and third
legs of the nearer butterfly also serve duty as the first and second legs, respectively, of the more distant
butterfly. Accordingly, the double butterfly spread ratio is always +1:-3:+3:-1. That is, buying 1 double
butterfly entails:

(a) buying 1 of the nearest delivery month (Leg1),
(b) selling 3 of the second nearest delivery month (Leg2),
(c) buying 3 of the third nearest delivery month (Leg3), and
(d) selling 1 of the farthest delivery month (Leg4).

CME Globex customarily permits trading in three variants: three-month (eg, Jun13-Sep13-Dec13-Mar14),
six-month (eg, Jun13-Dec13-Jun14-Dec14), and one-year (eg, Jun13-Jun14-Jun15-Jun16). Price is
always quoted as (Leg 1 price) minus (3 x Leg 2 price) plus (3 x Leg 3 price) minus (Leg 4 price).
Minimum price moveme"


I don't get why you would do this.. what would this expression be trying to accomplish? like why would you do this?
 
Quote from cdcaveman:

Double butterfly, as defined below

"
like why would you do this?
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Secure an invite to your broker's yacht ?

Martinghoul probably needs a day off :) On a fundamental basis, to trade small (perceived) distortions on a segment of the curve. Or in the days when the Fed were on the move, perhaps used to express a view on the pace and extent of a tightening/cutting cycle.

I understand that some prop shop traders might autospread these structures to take advantage of apparent temporary mispricings. Exchange-recognised spreads, quotes on implieds in/out and all that stuff. Beyond my realm.

My first ever ED spread trade was a long vs. short double 'fly. The Refco institutional desk probably doubted my sanity. At $6 a side then, they had a point.
 
It looks more like 3 bear spreads inside 1 wide bullspread.. which if you looked at it related to neutrality.. where would that be. seems like it would be very neutral.. with retail commissions.. this seems just hard to make sense of..
a way to hold inventory maybe, market that inventory above a point at which it was purchased.. purchased at a point of lower liquidity at an advantage to the the liquidity provider..
 
Quote from dunleggin:

Secure an invite to your broker's yacht ?

Martinghoul probably needs a day off :) On a fundamental basis, to trade small (perceived) distortions on a segment of the curve. Or in the days when the Fed were on the move, perhaps used to express a view on the pace and extent of a tightening/cutting cycle.

I understand that some prop shop traders might autospread these structures to take advantage of apparent temporary mispricings. Exchange-recognised spreads, quotes on implieds in/out and all that stuff. Beyond my realm.

.
More...


quotes on implied in and out.. thats referring to implied what..
 
Yes, I also thought perhaps (especially) back in the days when it was more heavily pit-traded that some locals used these to adjust their books.

Edit: I'll try and find a CME link / publication for an explanation of the implied in/out jargon
 
Quote from dunleggin:

Yes, I also thought perhaps (especially) back in the days when it was more heavily pit-traded that some locals used these to adjust their books.

Edit: I'll try and find a CME link / publication for an explanation of the implied in/out jargon
More...

Thanks... So you obviously have experience trading GE
 
Quote from cdcaveman:

Thanks... So you obviously have experience trading GE
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Yes, the hard way with scars. A few days after I placed that first trade (Feb '04), there was a similar FOMC to that of June this year, i.e. an unexpected change in the message & language. What I thought was a benign trade that would accrue gains at the pace of paint drying suddenly became a tentacled monster with sickening mark-to-market changes by the hour.

I elected to leg out of best I could, which was costly. Two weeks later it transpired that if I'd ridden it out I would have been back to break-even, and two months to the day the (exited) trade had matured and delivered the few thousand bucks profit I'd anticipated. Hence, the ET handle.

In the ensuing few years I traded much more with the options and used the futs mostly for hedging / gamma scalping. Haven't done anything with EDs since '06, though.
 
Quote from dunleggin:

Yes, the hard way with scars. A few days after I placed that first trade (Feb '04), there was a similar FOMC to that of June this year, i.e. an unexpected change in the message & language. What I thought was a benign trade that would accrue gains at the pace of paint drying suddenly became a tentacled monster with sickening mark-to-market changes by the hour.

I elected to leg out of best I could, which was costly. Two weeks later it transpired that if I'd ridden it out I would have been back to break-even, and two months to the day the (exited) trade had matured and delivered the few thousand bucks profit I'd anticipated. Hence, the ET handle.

In the ensuing few years I traded much more with the options and used the futs mostly for hedging / gamma scalping. Haven't done anything with EDs since '06, though.
More...

I had like 22 bear spreads in crude right into the Syria thing this year... Lovely way to learn.. I started learning derivatives in options......of course same thing with crude.. All the spreads were profitable in the long run... Yet I never quantified and relationships before I traded.. Never again! None the less. I made all that money back... I'm not gonna learn the knuckle head way with products out of my base
 
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