Whats the deal with time flys..... is there usually only and edge in commodities in these structures? or like if you had the month of dec was a announcment month and you wantedt get short nov long nov... Could you short addition premium by going short the oct/nov calender to get even more short nov.... whats the ideal situation to use time flys? time flys meaning +1/-2/+1 across the term structure or -1/+2/-1 i remember there being marging implications on short calenders.
Can be a lot of edge into the vol-ramp into earnings. Say you're 50 days out from GOOG's earnings and you buy the body in the reporting month and sell the "wing" months. You're still short some gamma if trading ATM, so you still need to be within one sigma on realized vol to earn.
Need to model and visualize more.. long body in the reporting month clearly makes sense... next earnings I'm putting more juice into that type of term structure exploit.... seems like if your not trading in futures where there's delta and Vega that's different for each month more often... ie steep con tango etc... then time fly's don't make sense as often in equities..
Closed the IB at 3.09. In a retrospect this position was profitable (trading at 2.96-2.98) 2 days after the open and that was the best time close it.
heres a good question if anyone cares to elaborate.. i was thinking about a butterfly in terms of the term structure.. close to expiration it becomes more of a play on gamma then it does on volatility.. i'm assuming.. this as well depends on how wide of a wingspread you have.. the wider the wing spread.. the more your in a short straddle and the less gamma risk your taking on.. correct me if i'm wrong so as you go out into the term structure the play becomes more of a vol play then a gamma play at some point.. where that is.. i have no clue.. i'm sure theres no general place in time that you could just throw a net over and say.. definitly here is the line between gamma play and vol play.. but i'm sure given some parameter you can find that place in time.. My guess is that as you go farther and farther out in time your sterilizing yourself to much to make any decent money.. goal: is to find a place in the term structure that has less gamma risk.. so that i don't have to flip flys so often and i have a higher amount of time buffer to manage the trade.
I have a question about long-term butterflies; why are they usually cheaper with months to go and become more expensive when expiration date is approaching? Would it be good to open them alobng the way?
thats a very simple question... options are more expensive the farther you go out in time.. obviously there are many ways to explain why.. but simply .. the more time, the more probability they could go into the money. hence them being more expensive.. expensive is a relative term.. meaning usually when talking about options pricing.. expensive means that you are saying they are price over fair value.. options lose value over time.. if your are net short premium you gain from the underlying not moving and the decay of the options.. in a fly you are net short premium.. your long two wings.. which is a small amount of money.. and short two atm's which is net short alot more premium then you are long.. so the wings lose value at a faster rate then the atm's do.. but cumulatively it equates out to less dollars then the atm's lose.. example.. two atm options = 100 bucks two otm options = 10 bucks if you lose 50 percent on the otm's and only 35 percent on the atm's your up because 50 percent of 10 bucks leaves you with 5 bucks.. and losing 35 percent of 100 bucks gives you 65 bucks.. for a net gain of 30 bucks.. you lost 30 dollars more in premium in the options that you sold then the options that you bought.
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?