Are butterflies worthless?

Discussion in 'Options' started by RGLD, Jul 18, 2018.

  1. sle

    sle

    In a completely idealized environment, indeed so. IRL, both American puts and American calls are slightly more expensive than the European counterparts. Besides carry considerations (which are obvious), there are various cases when having an ability to get the underlying early is advantageous such as various corporate actions.
     
    #41     Jul 21, 2018
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  2. sub-optimal exercise - you mean someone exercising his calls with more time value than the dividend? This definitely can happen, but it doesn't happen too often. The probability of someone exercising the calls that has very little time value and enjoying the dividend is much higher.

    Assignment by itself is not a big deal - unless is causes a margin call and forces you to liquidate the position at worst possible time.

    In any case, I just mentioned it as an addition consideration, not a major concern. If I can avoid the assignment risk and do the position with puts only, I don't see a reason not to do it.
     
    #42     Jul 21, 2018
  3. destriero

    destriero


    You'll see that the put fly is often more costly on microstructure in am-style options with wide-flies close to expiration.
     
    #43     Jul 21, 2018
  4. I usually don't trade close to expiration, but it could be a valid concern.
     
    #44     Jul 21, 2018
  5. destriero

    destriero


    Just that I see it all the time in single-names.
     
    #45     Jul 21, 2018