Labib, at what point in the cycle do you put your butterflies on? Perhaps between 30 and 40 days to expiration? Also, do you prefer to do call butterflies or iron butterflies? If you do both, what is your determining factor in choosing one over the other? Lastly, would you only put on a butterfly in a high volatility environment with the expectation of vol going lower, or is your directional determination of volatility not a factor?
Thanks for the very good posting.
RFH
--- In OptionClub@yahoogro
>
> --- In OptionClub@yahoogro
> >
> > Do you guys have videos on Youtube??
> >
> > --- On Thu, 6/4/09, paul7313 <paul7313@> wrote:
> >
> > From: paul7313 <paul7313@>
> > Subject: [TheOptionClub.
> > To: OptionClub@yahoogro
> > Date: Thursday, June 4, 2009, 4:01 PM
> >
> >
> >
> >
> >
> >
> >
> >
> >
> >
> >
> >
> >
> >
> >
> >
> >
> > butterfly; sell 2 qqqq calls at 37
> >
> > buy 1 qqqq call at 47
> >
> > buy 1 qqqq call at 27
> >
> >
> >
> > what happens if the market goes up, stays the same, goes down?
> >
> >
> >
> > I think butterflies are better than straddles
>
> >
> Selling ATM front month staddles gives you the highest yeilding strategy out there, but it is not recommended and dangerous. You are short two naked options and any one of them could wipe out your account.
> Butterflies on the other hand are hedged staddle. They come in all shapes and sizes, however we are concerned with 3 types of premium collection butterflies:
> 1- long call butterfly Buying 1 ITM call selling 2 ATM calls and buying 1 OTM call
> 2- long put butterfly Buying 1 ITM put selling 2 Atm Puts and buying 1 OTM put
> 3- short Iron butterfly selling 1 ATM call and Selling 1 ATM put (straddle) and buying 1 OTM call and 1 OTM put (strangle)
> All options are in the same Month. The long ones you pay premium and the short Iron Butterfly you collect credit, but
> All 3 have the same risk reward. and almost identical
>
> In your Example which is the Long call butterfly on the QQQQ +27 call
> -2 37calls and +47 call it is way too wide for the QQQQ. For instance as of this writting 6/5/09 after the close This butterfly for July expiration will cost you 7.32 and your maximum gain will be 2.68 way too much unnecessary risk. your break even points are 34.32( add the cost of the buutterfly to your ITM call 27) and 39.62 (deduct the cost of the butterfly 7.32 from Your OTM call 47).
> Instead you could do the July 32 37 42 for a cost of 2.58 and maximum reward of 2.48 almost 1/1 risk reward. and your break even points will be 34.58 and 39.38.
>
> However watch for Volatility, If volatility increses the price of the butterfly will drop, on the otherhand if volatility decreases The price will go higher. Butterflies are very slow moving vehicles and you get plenty of time to adjust them if they move beyond your breakeven points, except when we get very close to expiration.
> Personally I like to do them on ETF's and Indeces. SPY, DIA, XEO.
>
> Labib Imtanes
>
To unsubscribe from TheOptionClub, send an email to:
OptionClub-unsubscribe@yahoogroups.com
Change settings via the Web (Yahoo! ID required)
Change settings via email: Switch delivery to Daily Digest | Switch format to Traditional
Visit Your Group | Yahoo! Groups Terms of Use | Unsubscribe
No comments:
Post a Comment