Has anyone traded butterflies with delta hedging?
- Thread starter robert111
- Start date
Assuming you are short straddles/long Flys,you should ask yourself why you are delta hedging.
If you run a short vol/gamma book one is obviously delta hedging so the 2 standard + move doesnt send you the way of the dinosaur.
The other reason is to hopefully extract the differential between implied vol and "realised" vol.
Obviously,if you sell a straddle at 24 Vol,you feel the realised vol should be much lower.Its a pure bet,and if you are correct,you will be rewarded.With a butterfly,your greeks are tame relative to the straddle,hence its not as pure a vol play as the short straddle.
You can certainly delta hedge a fly,but in order to bank the same coin,you will have to trade much larger.It really comes down to your comfort levels.Would you rather be short 1 straddle or long 5 flys(approximation)..
I personally dont sell straadles in this VIX enviorment,but I do trade Flys
If you run a short vol/gamma book one is obviously delta hedging so the 2 standard + move doesnt send you the way of the dinosaur.
The other reason is to hopefully extract the differential between implied vol and "realised" vol.
Obviously,if you sell a straddle at 24 Vol,you feel the realised vol should be much lower.Its a pure bet,and if you are correct,you will be rewarded.With a butterfly,your greeks are tame relative to the straddle,hence its not as pure a vol play as the short straddle.
You can certainly delta hedge a fly,but in order to bank the same coin,you will have to trade much larger.It really comes down to your comfort levels.Would you rather be short 1 straddle or long 5 flys(approximation)..
I personally dont sell straadles in this VIX enviorment,but I do trade Flys
if you did this for each individual name, commission-wise you would create a very complex structure to extract a minimal reward.
On the other hand, if the delta hedge was on your entire book and you had many flies in different positions then it would make sense.
I read many journals where people once in a while bought spy/spx to hedge their book, and usually only when delta went beyond a certain limit threshold.
On the other hand, if the delta hedge was on your entire book and you had many flies in different positions then it would make sense.
I read many journals where people once in a while bought spy/spx to hedge their book, and usually only when delta went beyond a certain limit threshold.