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cdcaveman

Registered: Aug 2011
Posts: 3514

08-30-12 08:49 PM

Quote from atticus:

So you're not needing to unwind the various boxes.

i get it.. if your long one call fly.. then short one put fly at the same strikes.. you are long one box and short one box.. and that would take a close down on the long box.. the shorts on a credit and you just let it expire.. i know this stuff makes complete sense to you.. but i still have to digest the whole nesting flys thing.. if you have a call fly... then you short a put fly with wider wings.. and .. idk

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atticus

Registered: Mar 2007
Posts: 12608

08-30-12 08:53 PM

Quote from cdcaveman:

i get it.. if your long one call fly.. then short one put fly at the same strikes.. you are long one box and short one box.. and that would take a close down on the long box.. the shorts on a credit and you just let it expire.. i know this stuff makes complete sense to you.. but i still have to digest the whole nesting flys thing.. if you have a call fly... then you short a put fly with wider wings.. and .. idk

No, you use the same strikes on the put fly to "cover" the call fly. You would want to go wider (or narrower) on new positions to avoid closure of the flies already in inventory.

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cdcaveman

Registered: Aug 2011
Posts: 3514

08-30-12 08:58 PM

Quote from atticus:

No, you use the same strikes on the put fly to "cover" the call fly. You would want to go wider (or narrower) on new positions to avoid closure of the flies already in inventory.

i kinda thought you were talking about that... leave the nested flys and blanket over wider winged flys... so is that an advantage? inventorying a bunch of flys at different strikes and widths? i have only one fly on right now
aapl .. 665/675/685 expires tommorrow...

i'm not sure how one adjusts flys when the UL moves....

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atticus

Registered: Mar 2007
Posts: 12608

08-30-12 09:02 PM

Quote from cdcaveman:

i kinda thought you were talking about that... leave the nested flys and blanket over wider winged flys... so is that an advantage? inventorying a bunch of flys at different strikes and widths? i have only one fly on right now
aapl .. 665/675/685 expires tommorrow...

i'm not sure how one adjusts flys when the UL moves....

Not an advantage per se, but you maintain your inventory of boxes as opposed to the edge-loss of closing what is nearly riskless anyway. The wide you go the more vega you incur.

Fly adjustments are difficult, especially on narrow flies like the one you own in GOOG (or AAPL) unless you're very close to exp.

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tomk96

Registered: Feb 2010
Posts: 172

09-05-12 03:48 AM

Quote from cdcaveman:

So you have a long position in the stock.. you can very easily sell the synthetic equvalent in options and lock in your gain into a conversion... is there a way to close out a butterfly respectively? if i close a buttefly in the same day i open it.. i will automatically get pattern day trade trigger.. just curious here.. is there no offsetting neutralizing trade?

how does a reversal/conversion turn into trading a butterfly?

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cdcaveman

Registered: Aug 2011
Posts: 3514

09-05-12 04:11 AM

Quote from tomk96:

how does a reversal/conversion turn into trading a butterfly?

hey man.. it doesn't ... i was using the example of how you can get the same profit in a option position by going long a call and shorting a put... soooooo the way you get completely neutral if your long in the underlying is by going short in the synthetic equvalent.. so you would short a call and go long a put...

short stock = short call + long put
long stock = short put + long call..

buying a butterfly... or in other works.. going long a butterfly..
+1/-2/+1... if you disect this structure you have
a call debit spread... +1/-1
and a call credit spread -1/+1

the whole question stemmed from the ability to avoid getting a round trip day trade.. instead of just selling yoru long position.. you can just short through short synthetic... effectively locking your day trade winnings or losings in without getting talleyed for a roundtrip daytrade..

there is an exact opposite trade in a butterfly as well.. typically you use strickly calls or puts when opening.. so you could just use the opposite with all the same strikes.. so if you go long a call butterfly.. that day your in good profit you can just sell a put fly wiht the same strikes.. and you have set up two boxes.. which are riskless in nature..

http://www.theoptionsguide.com/box-spread.aspx

1 long box dissected is a bear put spread and a bull call spread..
a short box is just the opposite.. bear call spread.. bull put spread.. \

so effectivelly.. closing a long call fly with a short put fly is putting your in 1 long box and 1 short box.. effiectly neutralizing the trade to exit out the next day without getting hit for day trades... because opening a closing abutterfly in one day is 3 round trip trades.. each leg is looked at seperately...

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