Buy cheap tails. If your excuse is that 'it doesn't bring in as much credit' just do more of them. With commission schedules at rock bottom levels there is NO REASON why any professional trader would take on this kind of risk. Case and point: How do you think naked straddle traders are feeling after GOOG earnings?
I average ~5,000 contracts in long flies per month. I only sell naked vol in the deep-deferred stuff. There are times when it's impossible to isolate a skew and you're forced to hold naked gamma to accommodate the position. I sold 600C in GOOG with spot at ~470 for 2500bp over atm vols. Trade was a $300k winner for OPM [~ two years ago]. Ask optioncoach about GOOG straddles this month.
Flies are defined risk and work great on GOOG. I trade them all the time. Naked straddles are a rich man's path to the poor house. Incidentally, there isn't a single ATM straddle that made money on GOOG this past earnings.
Correct, spot was up $100. I stated the previous release. This release I was long deltas/short vol in the Jan09 470 from $126 and covered at $119 when it came in the day before the report. FWIW, I am hard-pressed to make a case for selling the atm combo. Yes, it's prudent to buy some garbage wings.
Atticus, I don't judge traders by how much bank they have, I measure them by the trades they make. I sit besides guys that are worth over $100mil so you're trying to impress the wrong guy.
I'm not trying to impress a guy with 7 posts or 7,000. You ridiculed the position and I simply stated that 99% of my short vanilla vol is in flies. You made a comment that it's never acceptable, and we'll have to disagree. It must be gratifying to sit next to people sporting a unit. I am happy for you.
Every week I drive by a building that is worth a couple of hundred million...but that does nothing for my net worth.