If I understand correctly, the Nymex guy made millions gamma scalping the flys (particularly a Reverse Iron Butterfly). Nonetheless, in 2008 he got taken out of the game [does this mean that he lost millions]... why did the flys not protect him from a IV collapse?? Thanks, Walt
I guess being pinned at expiration is more dangerous than I thought... [note to self] - liquidate short positions before expiration...
I think Spartacus's example was about a long straddle. If you're long the body of a fly, condor, etc., IV collapse hurts and vice versa.
Didn't he mention gamma trading into a fly... and the position ceases to generate delta at the wings? I assumed that the example he gave pertained to gamma scalping with a butterfly...
i read this on the bus... and I lol'd if there was an option strategy called the iron maiden, i'd be all over it.
negative empiricism again-i was told like that.....and i never question it..... and with a simple logic it gets you right there-you substitute 2 long options with a future-you get rid of theta exposure...but lose the gamma for that. but when they are hooked into a straddle its really the same,i was thinking and counting for two hours yesterday to "disprove" you,and i couldnt so BIG THANKS to you for the hint to compare them as a same amount of investment..... now,thinking even more over it,i was stupid enough to use futures for one of the legs all this time,when actually the cost of trade of a straddle is smaller,compared to the investment....no need for the futures trades at all........
another question: if you use r.iron fly for scalp,then you must scalp OTM shorts.....the gamma is very small,bid/ask is much bigger and hardly the scalp will battle even with commissions and bid/ask.....you need much bigger moves to do something,which with a straddle will make you much more profit.... i would agree,if your guy uses this to balance his sheets ,if he is MM,but to use it for gamma scalp,as a prime strategy? help out here,if you have time
scalping butterfly gamma is like chasing a turtle with a lamborghini. prior to expiration week, paint drying is more interesting to watch.
If you sell time the underlying shout stay quiet. But you can't guarantee any low volatility time period to happen ad finitum. Big moves can come anytime. What to do then? You have to partially sell the loosing leg and accept the loss when faced with a move agains you. The winning leg has to be inforced and you can even add to your position. Selling with a loss is hard from a psychological point of view. But that secures your edge. Spend a lot of time on psychology. Good luck!