.sigma's butterfly book

[BeautifulStranger]

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I've trying to figure out a way to accurately determine and model expectancy over the term until expiration and moneyness of a position.

It would also be nice to be able to determine optimal, if any, ratios between the Greeks. I guess it may simply be more of a personal preference than anything else.

I suppose it would help if I knew math!

 

[.sigma]

Word through the grape-vine volatility’s distribution is a power law. Keep it on the down low tho.

 

[.sigma]

I've trying to figure out a way to accurately determine and model expectancy over the term until expiration and moneyness of a position.

It would also be nice to be able to determine optimal, if any, ratios between the Greeks. I guess it may simply be more of a personal preference than anything else.

I suppose it would help if I knew math!

I hear ya brother, same here.

I definitely wish I was a tad better at math and spreadsheets as well like some of these geeks. Unfortunately I grew up in the gutter.

But the Greeks can be optimized, but maybe not in the way you think. Greeks were created to measure portfolio risk in the aggregate, not on single-trades. But I definitely believe one can calculate and crunch and model and back and toward test and do a bunch of cool math shit to develop a frame work to determine if vol is cheap/expensive etc.

For example there's ratios option traders abide by to manage risk (theta/gamma, theta/vega, delta ratios).

I'm not at that level yet, where I'm monitoring greeks.

The only thing I do is beta weight my aggregate to the spyders to get a glance of my risk via greeks, usually I'm looking at if I'm short/long delta overall.

 

[.sigma]

But even more so with a strategy like the butterfly.

You can position your strikes and term structure in ways to really get a glimpse of true risk and reward scenarios.

I could trade months and widen my width of my spread ATM, which is a completely different animal than a weekly fly OTM. You can position your strikes for a viewpoint on skew, and play vol. You can position for an expected move or spot vol. You can play a lotto ticket. You can be conservative and ride concavity gamma ATMF put flies. You can break wings and skew risk. You can add contracts and alter symmetrical payoffs. You can create conversions via jelly rolls. The list is endless. It's up to the trader to figure out which fits his personality best and start risking greenbacks for alpha extraction!

 

[.sigma]

tomorrow is expiry for some flies I got, I'll update afterwards. Today will determine the fate!

Im also starting to load up on this next weekly expiration. Rinse and repeat, reload and shoot projectiles of parabolic bflies across single names. Spray and pray.

I'm also looking to start actively managing my spreads. Usually I let them ride to expiry, experimentally. But I'm noticing a lot of good profits diminish for lacking to manage the winner.

Thus I will start managing my trades at a specific % of total profit, let's just say 50% or even get more aggressive at 25%. I can also scale up from being a johnny one lot, maybe do some 363 flies and manage a lot earlier since I'll see profits come in fast (and losses hehe).

 

[.sigma]

Oh and guys, earnings season is coming quick, and of course impliedmoves are thru the roof.

I want my bro @TheBigShort to trilogize his awesome "earnings" journals. If you notice, BigS trades a lot of fricken flies for earnings plays. He models vols and sprays accordingly. He's one of the ppl who has widened my eyes when it comes to trading. So yes I'll be trading earnings via fly's!

 

[.sigma]

Hey guys, these filled just now. I'll post a bit later with my analysis! Because I'm an analyzer dude! lol but yeah,

 

[BeautifulStranger]

Hey guys, these filled just now. I'll post a bit later with my analysis! Because I'm an analyzer dude! lol but yeah,

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Those 'flys look very tight, as with the legs very close to the body. In addition, Interactive Brokers option pricing model (Profit probability times risk to reward ratio) implies a negative edge. However the model does assume you are paying the full spread.

Destriero, now Poopydeek, is known for putting on wide flys, with wings, as I recall, often near or even beyond .05/.95 delta.

Consider looking at your 'flys as a synthetic position and note how your net cost from a synthetic outright perspective changes as you widen the wings.

Would an iron 'fly or iron condor be viable here, especially if going wide?

 

[.sigma]

Would an iron 'fly or iron condor be viable here, especially if going wide?

I hear ya! Thanks for the responses I learn a lot when you reply!

For now I’m doing basic 121 10 dollar wide spreads either ATM or slightly OTM. I want to stay ATM because of the concavity of ATM peak gamma. Not really a fan of iron condors but if put in the right hands a trader can bank nice coin..

and wait, poopydeek is dest?

 

[.sigma]

Those 'flys look very tight, as with the legs very close to the body. In addition, Interactive Brokers option pricing model (Profit probability times risk to reward ratio) implies a negative edge. However the model does assume you are paying the full spread.

Destriero, now Poopydeek, is known for putting on wide flys, with wings, as I recall, often near or even beyond .05/.95 delta.

Consider looking at your 'flys as a synthetic position and note how your net cost from a synthetic outright perspective changes as you widen the wings.

Would an iron 'fly or iron condor be viable here, especially if going wide?

How far would you go out? These are natural 10-point wide flies, with very good R:R and use of buying power.

Lets take my FB 160/170/180 for 2.72

Would you instead widen the width to say 20 points?

The 150/170/190 is currently quoted at 10.63. Which is a lot more expensive, and skews the r:r to basically 1:1.

What do you mean this pricing model is implying neg edge? Can you elaborate? And what does paying the full spread mean? Thanks.

I'm pretty sure Dest didn't put on flies with wings that far out. Maybe in the index, but not single-names. I could be wrong tho.