Swing trading with Butterflies

jamesbp said:
Andy ... apologies ... late arrival to this thread ... as you know, I am always interested discussing Wingspreads ... and am happy to chip in with ideas / feedback ... particularly if you are trading FTSE options

Couple of quick questions

#1 Where do you see the edge in a 132 -v- 121 structure ... maybe an example would be useful to illustrate

#2 How do you determine strike width ... for example ... I noticed some of your FTSE Flies strike width were 0.3% wide ( 25 points wide Fly -v- Spot 7000 )

Look forward to exploring further ...
More...


Thanks James

Q1 I'm using an approach that is probably different to most, running scenarios for a range of structures around a fixed body that is OtM.

As an example for the DAX position yesterday, I had the following choices:

121 15450/15600/15750 @ 24.25
132 15300/15600/15750 @ 62
231 15450/15600/15900 @ 96

MonteCarlo Simulation for the parameters I chose gave the following expected mean returns:

121 38.6%
132 45.6%
231 12.0%

Standard Deviation of returns was broadly similar for all three but lowest for 132, so Sharpe Ratio also favoured the 132.

Those simulated returns grouped by DTE look like this:

upload_2021-8-28_12-23-11.png


I place a range of BtC orders within that range, and if the simulated expected returns do not exceed my target returns, I obviously do not trade the position. When we spoke the other day, I mentioned that Bullish trades have been eliminated for these reasons (and/or insufficent skew) which has not been helpful in a Bull market so I probably need to amend the approach.

Q2. I use the Straddle around the Body to determine width. Keen to hear how others do this, why and what works best.



Edit: not sure why DTE legend on chart is obscured - its from 7 down to zero.
 
Global OptionsTrades said:
Thanks James

Q1 I'm using an approach that is probably different to most, running scenarios for a range of structures around a fixed body that is OtM.

As an example for the DAX position yesterday, I had the following choices:

121 15450/15600/15750 @ 24.25
132 15300/15600/15750 @ 62
231 15450/15600/15900 @ 96
More...

Andy

Thanks for detailed/interesting response ... couple of follow up qustions

#1 Interested to see what your thinking is of using Monte-Carlo sim to evaluate what are essentially discrete trades

#2 Strike width ... are you saying you use the ATM straddle to determine the Fly Wing-Body strike width ?

#3 I know it is slightly 'old school' ... but I like to dissect my wingspread positions into their embedded fly positions ... are you aware that the 132 / 231 Flies are essentially combinations of 3 x 121 Flies ... and in both the 132 / 231 Flies that you were looking at on the DAX ... include buying 2 x the 121 Base Fly (15450-15600-15750) + 1 x other Fly ... see below

ET_FlyStructure_01.png


#4 I know there is a lot of 'secret sauce' talked about the 132/231 Structure ... but in reality ... it appears to be overcomplicating a relatively straight forward Fly position ... but am open to be persuaded otherwise
 
Thanks @jamesbp

Brief responses to your points in order:

#1 Interested to see what your thinking is of using Monte-Carlo sim to evaluate what are essentially discrete trades

There is only any value in the exercise simulating the combo.

#2 Strike width ... are you saying you use the ATM straddle to determine the Fly Wing-Body strike width ?

No. The body straddle, which is usually OtM.

#3 I know it is slightly 'old school' ... but I like to dissect my wingspread positions into their embedded fly positions ... are you aware that the 132 / 231 Flies are essentially combinations of 3 x 121 Flies ... and in both the 132 / 231 Flies that you were looking at on the DAX ... include buying 2 x the 121 Base Fly (15450-15600-15750) + 1 x other Fly ... see below

Yes.

#4 I know there is a lot of 'secret sauce' talked about the 132/231 Structure ... but in reality ... it appears to be overcomplicating a relatively straight forward Fly position ... but am open to be persuaded otherwise

No intention to portray any secret sauce or proprietory IP on my behalf.
Per post #51, I simply compare the expected return for a variety of structures and choose what I expect to be most profitable.
 
Global OptionsTrades said:
Thanks @jamesbp

Brief responses to your points in order:

No intention to portray any secret sauce or proprietory IP on my behalf.
Per post #51, I simply compare the expected return for a variety of structures and choose what I expect to be most profitable.
More...

Andy

Thanks for detailed feedback.

I would be interested the next time you are considering a 231/123 type structure, if you could also evaluate the "approximately equivalent" 121 type structure ( essentially buying the furthest / cheapest OTM baby fly to complete the set )

For example

ET_FlyStructure_02.png


ET_FlyStructure_03.png
 
Whilst on holiday, I inexplicably and ill-advisedly put on two trades 'by the pool'. Both were placed in small size, and in each case 'on a hunch' without doing any analysis, so opposite to my usual disciplined and analytic approach.

Trade date: 08 September 2021
Security: SPX
Direction: Put
Expiry date: 10 September 2021
Strikes: 4455 / 4465 / 4475
Structure: 1 / 2 / 1
Opening Spread: 0.45
Close date: 10 September 2021
Trade duration: 2
Closing spread: 3.02
Profit / (Loss): 2.57
Profit / (Loss): 571.1%

Trade date: 16 September 2021
Security: VIX
Direction: Call
Expiry date: 21 September 2021
Strikes: 20 / 22 / 24
Structure: 1 / 2 / 1
Opening Spread: 0.19

This experimental VIX trade partially closed sufficiently to recoup its cost as VIX rose on Friday. I'll update tomorrow when the remaining portion has filled or expired.

Compared to my disastrous performance through August, perhaps there is merit in trading under-the-influence of tempranillo and cerveza more often! :D
 
The VIX trade closed in profit as volatility increased from c.19 on Thursday to c.25 today.

Trade date: 16 September 2021
Security: VIX
Direction: Call
Expiry date: 21 September 2021
Strikes: 20 / 22 / 24
Structure: 1 / 2 / 1
Opening Spread: 0.19
Close date: 21 September 2021
Trade duration: 5
Closing spread: 0.35
Profit / (Loss): 0.16
Profit / (Loss): 82.1%
 
Slightly out of order due to being away but the DAX position (#50) closed at a profit a couple of weeks ago.

Trade date: 27 August 2021
Security: DAX
Direction: Put
Expiry date: 03 September 2021
Strikes: 15850 / 15700 / 15550
Structure: 1 / 2 / 1
Opening Spread: 24.9
Close date: 03 September 2021
Trade duration: 7
Closing spread: 38.1
Profit / (Loss): 13.2
Profit / (Loss): 52.9%
 
Popped a longer duration (16 DTE) short on S&P500.

Trade date: 22 September 2021
Security: SPX
Price at opening: 4404
Direction: Put
Expiry date: 08 October 2021
Strikes: 4210 / 4305 / 4400
Structure: 1 / 2 / 1
Opening Spread: 10.35
 
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