Short Butterfly strategies

R

rickf

Slow tape day, figured to start a discussion on the short butterfly volatiltiy strategy.

For me, I view such trades as a credit-spread approach to trade volatility on high premium stocks before major news events. Yes, you need to plan the position carefully and granted, the payoffs are less, but IMHO I'd rather take in a smaller credit than pay high prices for a debit straddle/strangle going into a news event especially that premiums/vol are increased.

Anyone care to chime in on this strategy? I've done a few short flies (for real) with decent results......what say others?

We now return to your slow-moving Friday tape. :)
 
Quote from knocks420:

watch out for a guy named Atticus
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"Stat vol surface curves of flys vs convex tertiary gamma response effects seen in notouch exotics, leads 2cd-order synthetic iv arb-reversals..."


(Heh. My Atticus impersonation. Yeah I know, pretty sad.) :D
 
Quote from rickf:

Slow tape day, figured to start a discussion on the short butterfly volatiltiy strategy.

For me, I view such trades as a credit-spread approach to trade volatility on high premium stocks before major news events. Yes, you need to plan the position carefully and granted, the payoffs are less, but IMHO I'd rather take in a smaller credit than pay high prices for a debit straddle/strangle going into a news event especially that premiums/vol are increased.

Anyone care to chime in on this strategy? I've done a few short flies (for real) with decent results......what say others?

We now return to your slow-moving Friday tape. :)
More...

It's less confusing for the reader if you define the fly as long or short gamma/vega. Flies can flip-modality on greeks when trading in/out of the money. Put and call flies are considered long when short the body strike, irons are short when short the body [both short vega at neutral delta], hence the confusion. They are equivalent, so it won't matter which you trade. It's best to define the risk on the position rather than the combo vs. natural structure.

I don't know if you're trading long or short vol here. You refer to high "premium" stocks into earnings which leads me to believe you're a seller of vol, but then you counter with "debit straddle/strangle".

Are you looking to go long or short volatility?
 
looks like he wants to buy vol into event and hopes for the UL to jump to the short strike, where the position is profiting from the vol crash.

it might be a good plan opposed to buying a straddle and pray for the jump, however the OP should thing about skew risk.
 
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