NQ Butterfly Question

C

cohenmichaela

Is anyone out there actively trading iron butterflys with NQ. The reason I ask is that I pulled some quotes from IB today and came up with these numbers while NQ was at around 1566.

NQ SEP05 1570 Call = 56
NQ SEP05 1600 Call = 41.50

NQ SEP05 1570 Put = 50
NQ SEP05 1540 Put = 38

I arrived at these quotes by splitting the B/A.

Based on these numbers I calculated an iron butterfly with a max profit of 26.5 and a max loss of 3.5 at expiration.

My question is, are these figures accurate? If so, are any of you using these positions and with what results? It seems such a simple way to give yourself a 1:7.5 risk reward ratio.
 
I don't do option strategies just yet. But you got me salivating with the 1:7.5 risk/reward ratio.

If it looks too good to be true than it usually is no?!

ozzy


Quote from cohenmichaela:

Is anyone out there actively trading iron butterflys with NQ. The reason I ask is that I pulled some quotes from IB today and came up with these numbers while NQ was at around 1566.

NQ SEP05 1570 Call = 56
NQ SEP05 1600 Call = 41.50

NQ SEP05 1570 Put = 50
NQ SEP05 1540 Put = 38

I arrived at these quotes by splitting the B/A.

Based on these numbers I calculated an iron butterfly with a max profit of 26.5 and a max loss of 3.5 at expiration.

My question is, are these figures accurate? If so, are any of you using these positions and with what results? It seems such a simple way to give yourself a 1:7.5 risk reward ratio.
More...
 
It sounds very good but I understand I still have to take time to expiration and volatility into account. Even so, I figure I can always leg out of the short position as the underlying moves heavily in one direction and sucks the time premuim from that side.

In that situation I would have unlimited profit potential on the closed short leg (albeit with remote probability of that occuring).

Regardless I think on the surface this looks like a simple and sound position with some good adjustment options.
 
Go for it. That's the best way to learn.

(I understand the basic options concepts but I can't comment further on details/specifics since I have not done the necessary research into the subject.)

we have an upward short-term bias in the markets so the strategy should be tilted accordingly.

ozzy
 
The ratio of risk to reward is important...but expectancy is supreme. You can go broke trading with good risk/reward if your overall expectation is negative. I have no idea if selling iron condors on the NQ has a positive expectancy. You should backtest and see if it has had positive expectancy in the past before trading this strategy.
 
Are the NQ's liquid? You quoted the IC based upon midpoint prices. My guess is these things trade twice a day and you will have to be either very fast or lucky to get anything done in the middle of the quote.
 
I've traded NQ options before (not these butterflys). There isn't a lot of volume but the MM will normally fill you in between B/A with limit orders.

Of course you might not want to fudge around with it if you're trying to get a quick fill and don't want to possibly get hit with cancel fees on the limits. Then you have to pay the 3 or 4 point spread to the MMs.
 
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