Reverse Iron Condors

ForexForex · Mar 9, 2012

So has it been explained how Convexity fits into this thread? Looks like it doesn't. LOL

jkgraham · Mar 9, 2012

Quote from spindr0:

IOW, that's a butterfly.

OK I see that now. It is a Reverse Iron Butterfly when the options that are bought are both ATM instead of a Reverse Iron Condor. Am I right about that?

So (9 pages later) does anyone ever use Reverse Iron Butterflies?

jkgraham · Mar 9, 2012

Quote from spindr0:

And what kind of stop loss will you run if the stock goes nowhere? Will you be disciplined enough to close at down 1 pt? Or ride to down 2 while hoping for BE? And what if you catch the rare dog that sits near the center strike until expiry and loses the $4.50 max? Will you then get 9+ 50 cts winners to break even? If you like those odds, go for it. I don't.

If it didn't move right after earnings into a profitable range I would close the entire position and take the loss. I would lose a few days of Theta and possibly a lot of Vega if IV drops, but both of those risks are the same risks that Straddles and Strangles face as well.

I would definitely not hold into expiration if it was a total loss.

jkgraham · Mar 9, 2012

Quote from spindr0:

What if you catch the rare dog that sits near the center strike until expiry and loses the $4.50 max? Will you then get 9+ 50 cts winners to break even? If you like those odds, go for it. I don't.

If you sell regular Iron Condors for a 10% gain it would only take 1 loser to equal 9 winners but in practice you shouldn't let it expire with a total loss. You can usually get out of losers with only a 20%-30% loss. I wonder if the Reverse Iron Butterfly would be simialr if you bailed-out of a loser before it expires. Maybe for only a 30% lose or less.

ForexForex · Mar 9, 2012

Quote from jkgraham:

If you sell regular Iron Condors for a 10% gain it would only take 1 loser to equal 9 winners but in practice you shouldn't let it expire with a total loss. You can usually get out of losers with only a 20%-30% loss. I wonder if the Reverse Iron Butterfly would be simialr if you bailed-out of a loser before it expires. Maybe for only a 30% lose or less.

If it's earnings related it would be more like a 70%- 80% loss after the first day if the stock just moves 0-5%.

spindr0 · Mar 9, 2012

Quote from jkgraham:

OK I see that now. It is a Reverse Iron Butterfly when the options that are bought are both ATM instead of a Reverse Iron Condor. Am I right about that?

How about you try learning to say Long Butterfly and Short Butterfly?

spindr0 · Mar 9, 2012

Quote from jkgraham:

If it didn't move right after earnings into a profitable range I would close the entire position and take the loss. I would lose a few days of Theta and possibly a lot of Vega if IV drops, but both of those risks are the same risks that Straddles and Strangles face as well.

Not the same risks. IV collapse affects you but you won't lose anywhere near as much vega wiith a spread because to some extent, what you overpay for the long legs, you receive for the sale of the short legs.

spindr0 · Mar 9, 2012

Quote from ForexForex:

If it's earnings related it would be more like a 70%- 80% loss after the first day if the stock just moves 0-5%.

ONKKKK!!!

Wrong answer.

Do not pass GO.

Do not collect $200.

Go back to Yahoo.

newwurldmn · Mar 9, 2012

Quote from ForexForex:

So has it been explained how Convexity fits into this thread? Looks like it doesn't. LOL

If you are buying options you want as much convexity as possible. If you are selling them you want convexity protection.

How would you have your 800% returns that you bragged about if you were trading callspreads instead of outright calls?

newwurldmn · Mar 9, 2012

Quote from spindr0:

How about you try learning to say Long Butterfly and Short Butterfly?

I want to trade a reverse short stock.