Diago fly + 1 long call or put depends on direction, my favorite: least margin and commissions. Adjustment: sell bull put if went up short strike below the center of diago fly (where 2 initial shorts sold), will flatten more the graph and get out with a scratch. Execution, long the diago fly then long the call immediately after. If you are bullish and want to reverse this setup, IV decrease will play against you if underlying goes up. When bullish then go straight fly not diago the IV crunch will play with you not against you.
whats the true advantage of a calender butterfly? are you basically just exploiting the fact that you can make the wings wider or/and wider with less money and/or a different theta profile? This would exploit the Theta loss of the ATM calls the most right?
Reasons for bearish diago fly: 1- Vehicles goes down IV goes up, diago benefits from increased IV 2- Short legs decay much faster than long legs 3- Better execution on far itm and otm legs on monthly than on weekly because spread is tighter (for far itm and otm, not for atm).
Theta less than a same-strike. You have to swap vegas for deltas on a diagonal -- to run a flatter vega you must take more delta.
Right. To flatten the vega you have to go deeper ITM on the long. This flattens the vega at the expense of delta. You have to maintain exposure to one or the other or ratio (add gamma risk).
I still need to know how to replicate a QQQ option position with MNX options. Lets say I have 20 call QQQ options with strike 58. How many MNX options with which strike would I have to buy in order to replicate this position?