iron condor

IWM is better then RUT. Cash settlements are a bitch. I'll be happy to pay a few extra cents for that privilege.

 

Actually a butterfly and iron butterfly are synthetically the same. The difference is that instead of using all calls for example in the iron butterfly you would use a bull put vertical and bear call vertical. The call butterfly is for a debit with max profit at the short strike (strike width-debit) while the iron butterfly is for a credit with the max profit at the short strike (both shorts expiring worthless thus keeping credit which ain't gonna happen).

Ex RUT call butterfly Long 1 790 call short 2 800 calls Long 1 810 call

Iron butterfly Long 1 790 put Short 1 800 put Short 1 800 call Long 1 810 call

 

well, its just a suggestion and trade whatever it is you like, obviously. if you went to sleep during your trade and you allowed your trade to end up in the money, would you rather have it cash settled or be long or short an etf?

 

Oh Jesus, I would much rather be long or short the ETF. LOL. You DO NOT want to be in the cash options if you are anywhere near your strikes.

 

i stand corrected. i just took a long butterfly and turned it upside down.

 

why? how are you seeing the difference?

 

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Quote from spindr0:

Sell one each of these and buy two each of those.
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The more two each of those costs the less one each of these you get to keep.

 

Completely DIFFERENT settlements! As you near the strikes at exp, the cash starts trading at a premium to parity because of the jump risk. It's equivalent to holding an option over an earnings announcement. The RUT settlement is very jumpy. You have 2000 stocks, most of which are listed. The RUT can spike 10 to 15 handles on average over spot. In 2008 RUT spiked over 80 handles on two occasions. Yes, 80 handles!!!!!!!

So if you are short cash going into exp you have two choices, either buy back your options at a HEFTY premium or gamble on the SET which could be a huge spike against you. And there is no way to hedge settlement. In fact, hedging only adds additional risk because there is very little correlation to SET and the underlying.

 

i agree on the settlement risk on the rut if a trader was to hold positions until expiration. with etf's, its risky too, you would then be long or short on the following monday and then you can also have one of those major moves as well, no?