Simultaneous buttery and credit spread

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OptionGreekGeek

I want to ask experienced traders thoughts on using both butterflies and further OTM credit spreads, or even butterflies on both sides and iron condors on the same underlying? When we talk about Broken Wing Butterflies, it's essentially a butterfly with an embedded synthetic credit spread. The problem is, the delta on what would be the short leg of the synthetic credit spread is usually higher than 20, not a good candidate for a condor.

Here's an example on an underlying.
+1 1300 Call
- 2 1330 Calls
+ 1 1380 Call

It's as if I did the 1300/1330/1360 butterfly and sold the 1360/1380 credit spread.

If the underlying shoots up to 1400 early in the trade, I don't see how the butterfly helps me, and it's as if I just have a credit spread that got blown out.
 
Exactly right. You just skewed yourself neutral to short. Basically, if the market stays flat or falls you win, if it rallies you just increased your risk with the credit spread
 
So, putting this kind of broken wing butterfly on both sides seems problematic. On the downside, it has the additional problem of short vega, less of a problem on the upside. Perhaps an additional long option further above/below could help?
 
OptionGreekGeek said:
So, putting this kind of broken wing butterfly on both sides seems problematic. On the downside, it has the additional problem of short vega, less of a problem on the upside. Perhaps an additional long option further above/below could help?
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Your risk will be slightly more contained on a 1/3/2 unbalanced fly. It’s a debit with a double credit over the top. Probably a significantly better credit as well.
 
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