Registered: Feb 2009
04-30-13 11:32 AM
Quote from atticus:
I agree that flies are a poor long vol trade. Why limit the outlier for what's often a asymmetric risk? A straddle and a fly converge as you add width to the strikes, so if you knock the fly it's also an argument against the straddle. Narrow flies are not a bet on anything but a pin.
Gamma trading an ATM option IS a straddle.
So what to trade for the upstairs guy who wants long vola and doesn't want to ratio into some moronic naked short wing calendar? (Why trade the ratio calendar/diag when it quickly flips modality on vega?)
I like 1:1 diags which solve for a minimal gain if DITM, but hit max payout at mid (between spot and strike). Nearly flat gamma and a few thetas.
atticus, please give a live example of such a diagonal.
Do you sell deeper in the money than you buying, or you buy deeper in the money than you selling. Do you initiate this spread DITM or ATM?