Selling OTM butterfly in RUT

[my7tvette]

Do any of you RUT option traders have experience trading OTM butterflies? I was trying to sell some today, I basically split the bid/ask and left my orders out all afternoon. No fills. How much do you have to give up on these? As it was the bid prices were basically zero or a nickel.

Gee, let's see, maybe I should hit the bid and hand over a bunch of free butterfly spreads.

I thought about trying to leg in using verticals, but of course your prices after trying that trick would likely be as bad or worse than just hitting the bid.

I don't have time to sit around fishing for fills all day, so normally I don't haggle too long, but in this case, it just didn't seem worth giving up any more to get the trade on.

Any thoughts?

 

[dagnyt]

Quote from my7tvette:

Do any of you RUT option traders have experience trading OTM butterflies? I was trying to sell some today, I basically split the bid/ask and left my orders out all afternoon. No fills. How much do you have to give up on these? As it was the bid prices were basically zero or a nickel.

Gee, let's see, maybe I should hit the bid and hand over a bunch of free butterfly spreads.

I thought about trying to leg in using verticals, but of course your prices after trying that trick would likely be as bad or worse than just hitting the bid.

I don't have time to sit around fishing for fills all day, so normally I don't haggle too long, but in this case, it just didn't seem worth giving up any more to get the trade on.

Any thoughts?

Yes.

Not every stock (or index) can be traded with your desired strategy.

OTM - you did not say how ar OTM, but the bid was zero, so it must be pretty far - options are not want everyone wants to trade. In that scenario, you give them MMs a good price, or they won't make the trade.

Apparently you need a different underlying or a different strategy for this specific spread.

Mark

 

[my7tvette]

You are correct Mark, I think a different strategy is in order. My temperment and preference are to be a premium seller, but I have some issues with IC's. Once you get far enough OTM that you won't need to worry about regular adjustments, the premiums get pretty sparse.

I experimented with a ratio backspread last month, but being net short contracts could leave you being carried out on a stretcher if you get greedy. I adjusted my position twice last month when the market was tanking, and ended up with a small loser as opposed to an equally small winner.

I've been looking a various setups, using monthly ATR on the underlying to help gauge how wide to make my short options. One thing I've noticed is that if you select strikes that, on average, might be losers maybe 10% of the time at expiration, your short strikes will be violated, if only briefly, up to 20 or 25% of the time if held to expiration.

With that in mind, it would seem that frequent adjustments may be more of a panacea that, while they may help you sleep at night, are more likely to blunt the overall profitability of a strategy. Perhaps it would just be better to trade smaller and take your hits when they happen, either closing out and resetting in a new position, or just riding it out, realizing that the market has an equal chance to reverse in your favor as not.