Damn Nitro, it took you 6 months to make that comment. LOL. You know Baron is no longer tracking total number of posts so these short posts are no longer in vogue.
The Perfect Option position
- Thread starter Maverick74
- Start date
Damn Nitro, it took you 6 months to make that comment. LOL. You know Baron is no longer tracking total number of posts so these short posts are no longer in vogue.
MAV,
this ratio spreading of the iron butterfly is something that never occurred to me, [probably cause i'm in energies, and it would never occur to me to spread say spot February heating oil flies against April flies . . .it gets cold in February, not so much in April, so the two expirations wont necessarily move in sync]
but typically, in a backwardated commodity market, [i.e nearby future premium to deferred] the ratio fly will allow for SOME extra strangles to be carried [maybe not 2 to 1 for the deferred strangles to the spot strangles,but maybe something like 1.3 to 1]
could one say that one could construe the extra deferred strangles as an implicit measure of the correlation coeff twixt the nearby and deferred?
this ratio spreading of the iron butterfly is something that never occurred to me, [probably cause i'm in energies, and it would never occur to me to spread say spot February heating oil flies against April flies . . .it gets cold in February, not so much in April, so the two expirations wont necessarily move in sync]
but typically, in a backwardated commodity market, [i.e nearby future premium to deferred] the ratio fly will allow for SOME extra strangles to be carried [maybe not 2 to 1 for the deferred strangles to the spot strangles,but maybe something like 1.3 to 1]
could one say that one could construe the extra deferred strangles as an implicit measure of the correlation coeff twixt the nearby and deferred?
Can I ask you why you want to spread the Feb's against April? Now keep in mind, I don't trade commodity options so I am looking at this purely from a simplistic standpoint but with the calendar that narrow, you are giving yourself too much long premium in the front month and exposing yourself to what is probably a pretty sharp smile on both the front month and deferred month. You are giving up a lot of edge on the front which is OK, except for the fact that you are giving up a lot of edge on the April's too.
The further you go out, the flatter the smile becomes. The idea of using the backspread on the deferred months is to allow you to have negative gamma for as much of the front month as possible. Your negative gamma exposure here will be minimal. Like I said, maybe you see something in the energies where this is a profitable spread, I don't know, because I don't trade them but it seems like this trade would be very frustrating to have on. Just my two cents.
Yes, I have. I am primarily a short gamma trader. But if I trade long gamma, this is the only strategy I will use for an UR position. If I want LR with long gamma I will use short backspreads.