Wednesday night FLY marked at .0139 with /6e @ 1.1252. Would like to see it chop a little here rather than make a strong run to 1.14.
1.1363 today on another spike so not chopping as I would have hoped. I might take the tiny profit and re-evaluate....
Position update below in chart. REMEMBER the chart is created for example 1/2/1 FLY not for my actual position. Euro in upper ranges of FLY profit zone so another burst higher will require adjustment or close. With 3 weeks to expiration, I would most likely close. Euro /6E @ 1.1344
Closed my FLYS @ .0126 for 11 pips ($137.50 per FLY, i.e. 5 FLYS = $687.50 10 FLYS = $1,375 etc..). /6E broke down through 1.1300 early this morning and was hoping it would churn between 1.12 and 1.13 where FLY would have pushed towards .0150 but EURO looks like another run at 1.14 and rather take even the tiny profit here with so much time left to expiration. Vols were relatively low when I bought this so my only bank was on theta and churn but starting to see to much support above 1.13 and with 3 weeks left. Tiny profit but walked away with one. If you trade FLYS you know it is a lot of singles and doubles, occasional triple and a very rare home run.
Option, if you traded as a straddle instead of as a fly, how much downside risk to your equity would you take if the EURO rallied 100%?
Well I am not sure Euro would rally to 2.24 haha. I definitely would have been more nervous when /6E hit 1.1370 but the straddle had a wider profit zone than the FLY. Basic risk/reward of options, -straddle has wider profit zone and higher profit peak but more risk, FLY is defined risk but smaller profit zone. I have to admit since I bought this prior to fed I was risk averse doing the straddle in this case.
I guess the point of my question is how big are you trading that you are willing to give up edge in buying the wings. There can't be any scenario where the wings earn more than the body loses but if the overall structure allows you trade larger size, is that worth it. I rarely trade butterflies. I mostly trade straddles (largely on the short side) but the notional of the book rarely exceeds my equity - and if it does, never more than 2x.
I think the big issue is I put this on before the FED and had no problem giving up a little profit zone for the safety of the wings. I never EVER look at maximum profit because you rarely hold a FLY or short straddle all the way into expiration and expect to pin the middle strike...just not realistic. I do not see buying the wings as giving up edge, it is pure risk management and controlling the position margin allowing me to do greater size in the FLY than I would in the straddle. This in turn lets me take smaller profits more comfortably. Do not overlook the margin v. risk aspect of being able to withstand a huge price swing in a FLY with much smaller losses in exchange for having to wait a little more for profit to develop in the FLY. To me it is not a question of edge or right or wrong, it is how comfortable are you in the situation. I still do naked straddles on vol events but more FLYs because I am very comfortable giving up some profit zone in exchange for a bigger safety net which lets me trade bigger and longer. But in the end it is more preference than right way versus wrong way so I would not say your view is incorrect, just maybe more in line with your trading preference if that makes sense.
How are you defining notional here? To my knowledge it would be: [# of contracts (long or short)] x [point value] x [strike] However, that appears to be a somewhat abstract risk measure. Not a criticism, I'm genuinely curious and feel that I'm missing something. Thanks.