Spreads versus Butterfly

[cesfx]

I thought you were still on MARA...
GME 21, 23, 24 for a similar payoff

 

[Zwaen]

How can you ever make statements like these without considering a proper pdf function? (and that would probably be ‘90 style)

 

[wxytrader]

How can you ever make statements like these without considering a proper pdf function? (and that would probably be ‘90 style)

That's why we have standard deviations...its basically how options are priced.

 

[Zwaen]

That's why we have standard deviations...its basically how options are priced.

Shouldn’t we use the wxy-distribution to price options?

 

[2rosy]

get the implied distribution from the butterfly

 

[maxinger]

Butterfly is a Spread.

Spread is not a Butterfly.

 

[TheDawn]

Butterfly is a Spread.

Spread is not a Butterfly.

Butterfly is a Spread. Spread might not necessarily be a Butterfly.

 

[wxytrader]

How can you ever make statements like these without considering a proper pdf function? (and that would probably be ‘90 style)

However, the actual truth is PDF (probability density function ) is defined for continuous random variables, whereas PMF (probability mass function) is defined for discrete random variables.

The probability density function measures continuous variables—stock and investment returns are generally not continuous random variables; they are discrete.

Wouldn't a pmf be more suitable?

 

[Bekim]

I like to start off a trade as a spread and then convert it to a butterfly if it moves in the desired direction to take the risk out of the trade

 

[2rosy]

I like to start off a trade as a spread and then convert it to a butterfly if it moves in the desired direction to take the risk out of the trade

why not sell it and collect $