Lets say the es is at 1300 and i am expecting a hit at either 1350 or 1250. What's a good r/r combo to open? Is there something better and more elegant than opening 2x otm flies at either end? 1345/1350/1355 and 1245/1250/1255
Why not if I close the position when the otm fly becomes atm? Ate you talking about this specific example? Change it to 1200/1250/1300 max profit is at exp but it becomes profitable on day 1 i believe if underly moves to 1250
Well, in my experience, pinning the strike (which is what you're trying to do) isn't as easy a game as you think it is. The mkt won't normally pay you more for the fly than you paid for (esp taking bid/offer into account) when/if you get near the middle strike. It will only happen closer to expiry and/or if vol collapses. Obv, this is simplistic and there's other variables, but that the gist, IMHO.
Downside long calendar, upside fly. If you're intent on holding to expiration it won't matter, but if you're looking for a touch, then go with the down n out calendar and up n out fly instead of dual flies.
I presume you're suggesting this (I mean the fly bit) due to the directionality of index vol, atticus? If so, out of idle curiosity, would you say it's still a meaningful relationship, given the outright level of vol?
Sure, I can understand that. I am more interested in its behaviour on a rally, I guess. I can imagine this correlation has some "skewness".
They work great on rallies. Any loss on the wings due to the vol-line is more than compensated by the g/v gains. The only real risk is flipping delta position.