what is the problem of butterfly strategy ?

[IV_Trader]

what is so great about butterfly ?

 

[cnms2]

Trading flies is expensive because of the four legs, each one with its slippage and commission. Their cost increases quickly when you have to adjust, i.e. putting on new butterflies to compensate for the underlying moving out of the profit zone. If this happens with implied volatility increase (most likely) you'll keep locking in losses.

The perfect scenario would be a volatile underlying that falls to sleep right after you put on your butterfly until the expiration. Difficult guess ...

Butterflies are great for the market makers: racking up slippage from four legs in one trade.

Quote from steve46:

I agree with Riskarb. I would add however that overhead (commissions) are significant. If you cant control this cost it is hard to make money on it. Also his comment about vol is important. If you forecast higher vol this isn't the way to go.

Personally I see higher vol in the near future, but that's just my opinion. I wouldn't be using flys right now. If I could afford the rent I would be starting to buy premium in here anticipating a change about mid January/early February or so.

Good luck
Steve

 

[ozzy]

Anyone trade the Pterodactyl strategy?

 

[riskarb]

Quote from cnms2:

Butterflies are great for the market makers: racking up slippage from four legs in one trade.

I trade 1000s of contracts in flies every month. The average spread on a GOOG 20-wide fly is $.60 -- all trade from one order line with 5 exchanges on the bid and offer.

 

[GATrader]

Just buy an extra C strike . For more info google Charles Cottle's slingshot spread.

 

[ozzy]

http://www.riskdoctor.com/

You can get his "Coulda Woulda Shoulda" book there for free.

 

[cnms2]

Would you advise an options newbie, as this thread's initiator, to start with butterflies?

Quote from riskarb:

I trade 1000s of contracts in flies every month. The average spread on a GOOG 20-wide fly is $.60 -- all trade from one order line with 5 exchanges on the bid and offer.

 

[hermit_trader]

I feel the OTM used in the flies can't be "too out". As the volume of them are very thin and slippages are big. Is it correct?

 

[IV_Trader]

I'm truly don't understand the love affair with complex option's positions like spread , butterfly , condor... I thought the only way for RETAIL trader to be profitable is to have high (more that 55%) rate of prediction for one of the two unknown option's variables : future Price (or price range) or future Vols.
If one do have such a rate , isn't better to enter one leg position (for directional trader) and delta neutral position (for Vols trader) ?
In the long run , odds and probs are the same , so why pay more commissions and spread ? Looks like another "product" that good only for brokers and MM.
One can compare it to sports betting , where the house advantage for single game bet is only 4.5% , but for "complex and exotic" bets like Parlay is well above 10%. Not exactly apples to apples , but you got my point.

 

[nitro]

Quote from MTE:

...The problem with them is that you can't reach the max potential profit until actual expiry... but Gamma is getting pretty high.

That is the conundrum with straightforward bflies - it is exactly when you want to cash them in, near expiration, that gamma starts to go from .01 (for index futs for example) to 0.05.

There are few free lunches left in options, and certainly few if any left in straight options positions.

nitro