selling a butterlfy
- Thread starter met1989
- Start date
And what adjustments would u do ?
First understand what is your purpose and goal for selling a butterfly? It is a vol play mainly because although it makes money if the underling moves outside the body zone area, you are not playing this like you would a long straddle. So if it is basically a vol play with a 4 legged position, why are you considering adjustments?
If you are a man and you are feeling like a butterfly, thinks two times about if you are a really man.
There is no point what I just said, but this thread either
There is no point what I just said, but this thread either
Cause what happens if I’m a week to expiry and it’s not moving out of the money so I need to adjust or thinking of it now I will sell
I'm curious though... does anyone here trade short butterflies? I've only traded long flies and never personally have seen others trade them short (long body/short wings)
Yes, primarily embedded in a position as a financing tool
Say, you trade
... backspread -1c 90 / +2c 100
You are effectively
... selling -1c 90 / +2c 100 / -1c 110 Fly
... to buy +1c 110 outright
Hmm... I guess if you sell that additional higher 110 call to hedge your overall portfolio it might make sense, but as a single backspread selling the 110c doesn't make sense? You buy that additional call as a hedge in case the underlying booms up, so if you sold that 110c you're dissolving the additional 100c. Idk what do you think? Also, the R:R on a short butterfly is horrid as you'd expect and doesn't make much sense economically.
So far I don't understand why initiate a short butterfly as a single trade. You want the underlying to move in magnitude quickly, why not just buy an ATM straddle?
It’s much more expensive to buy just a straddle and you have to have a big move with butterflies u have your los cap and it’s small
Well yea its cheaper because the short butterfly is a capped long straddle, but is the magnitude of the move you need really that much different? With the additional short wings moving the break-evens does it warrant it? To me theres just way better options to utilize than a short fly, also since long flies have the best R:R, short flies have the worst R:R.