Worse. The OTMs trade on tighter markets, so they are preferable. An OTM butterfly is synthetically equivalent to an ITM using the opposite option class (call vs put) anyway.
weewilly, thank you. So perhaps, by the same logic, I should continue doing irons instead of all-call or all-put flies?
This is my modest contribution to the option world: I usually do short put spreads as out of the money as there is a bid on. Short term only, less than 30 days. (I will try to sell the last one that has a bid and buy one lower that doesn't have one) I know many people here do IC, I don't like them because I don't like to have my nuts squeezed. Also, at any given volatility level, calls are cheaper than puts so you don't get much more money for the risk you add to your position. Besides I find that very OTM puts are poorly priced (they get too expensive IMO) any day the VIX goes up more than 5%. That doesn't happen with calls as far as I can tell.
Timing is direction when it comes to stock. The "time" to buy stock is just before/during an up move. And not surprisingly, it's the opposite for short stock. You have every right to avoid the facts. But for those unfmiliar with synthetics, any adjustment made to the synthetic has the same result if made to the natural. It's as easy as ABC. If A=B then A+C = B+C Why not explain to all why you think that it is easier to adjust the synthetic put than the natural as the stock moves?
Iron butterflies have 4 legs, the call vertical versus the put vertical, so commissions will likely be higher than the 3 legged equivalents, depending on your commission structure.
Deep ITM will have more slippage (larger spreads). The number of transactions (commissions) will likely be higher since more legs are ITM. You have the potential to save on commissions only if the legs (short) are OTM and expire. Early exercise will also be an issue with ITM.
A little correction, in my 2nd post, the IVs for Sep and Oct calls are incorrect. They are not 27%, they should be 31% for Sep call and 32% for Oct call instead. The risk profile does not change. See attached image.
Totally agree! I fully support your statement. "Ask not what your options can do for you, but what you can do with your options." --- OddTrader