The butterfly megathread

[ironchef]

stylized example

View attachment 202882View attachment 202878
View attachment 202879View attachment 202880View attachment 202881

For equities, are skews generally sticky strike or sticky delta?

 

[deltastrike]

stylized example

View attachment 202882View attachment 202878
View attachment 202879View attachment 202880View attachment 202881

Nice presentation, although personally I would want to be long vega in most cases when price is going down. Maybe someone more knowledgeable could chime in on where a fly would outperform a calendar in this type of scenario.

 

[jamesbp]

How are you evaluating Vega effect on Calendar
... raw vega or weighted vega ?

 

[deltastrike]

How are you evaluating Vega effect on Calendar
... raw vega or weighted vega ?

Good question for me as I don't know the difference, perhaps you could educate me on the difference between the two? In my relatively simple understanding if I'm betting price will drop then I want to be long vol/vega.

 

[jamesbp]

Good question for me as I don't know the difference, perhaps you could educate me on the difference between the two? In my relatively simple understanding if I'm betting price will drop then I want to be long vol/vega.

I guess you are assuming that long vol is the equivalent to be being long vega
... which isn't necessarily the case

Which vol are you expecting to increase ... front month, back month, by how much in each case

Pick an OTM put calendar and see what changes to the option prices / vega when spot heads towards the strike

All other things being equal ... assuming sticky strike vols ( the IV of the calendar strikes will not change ) ... the price of the calendar will increase because the Vega of ATM options is greater than OTM options ... so more a directional bet than an outright Vol bet

IV's in the front month / back month will change at different rates ... with front month more sensitive than back month ( square root time ) .... which is usually ignored in most discussions about calendar spreads

 

[ffs1001]

This is a very fascinating thread (many thanks to El OchoCinco).

I realise that the low volatility means that flies are not common in this scenario, but it would be great if this thread became active again.

 

[kj5159]

I'm new to trading flyes, I have been trading them as directional bets on the underlying when I can find a fly that has a r/r that I like. I need to learn much more about the vol side of it.