Not exactly sure what you mean? AAPL has strikes listed many st.dev away from spot. Are you talking more about the timing of the event? One can structure butterflies across the term-structure as well, not just ATMF.
look, it reallly doesn’t matter. It was an example saying that just because a specific spread(I.e. vertical/butterfly/etc has clipped the left tail (in payoff space of the specific trade), doesn’t mean your left tail is clipped in payoff space of the portfolio. Need to make sure you’re left tail exposure (if any) in P/L space at portfolio level is hedged. That’s all.
I think most 60/40 porftolios really need to focus on what you're talking about. For example in my portfolio the risk is to the right tail, not left. So it depends personally, thanks for responding though!
All things considered, short answer is yes. Even including returns year to date, overall I am still better off than buy and hold index funds. Some backtests and simulations showed that the answer depended on if I were able to compound some or all of the gains during good years. Perhaps, time itself is a hedge?
1. I don't know. Putting all $100,000 in 100 flies when everything is somewhat correlated is still better than putting $100,000 in one fly? But if all you have is $100,000 and put all the money in flies is perhaps not smart. 2. Similar to buying puts, if the car insurance costs an arm and a leg, it might be better off self insured. A good example is earthquake insurance in California, so expensive! I don't have earthquake coverage, instead spent $ to make it more earthquake proof. Overall I should take a careful look at what you wrote and consider tail protection. Time is not on my side this time around. Thank you for your comments, I really appreciate them.
What do you mean "when everything is somewhat correlated"? Many markets are negatively correlated.. Also I don't see putting $100k in many flies a bad idea at all. If you know what you're doing and size it right you can make a ton of money. It all depends.
And if one doesn’t have the $ to build an “earthquake proof” home (if that’s even possible), then one shall not live in an area that’s known for having earthquakes, or near fault lines.
Sir, I spent the last week running BSM simulations and backtests SPY tail risks using my newly learned VBA-excel programming skills (since I don't have historical option prices, I made some simple assumptions on IV - historical, historical average, term structure, skew...., dividend rates and risk free rates): 1. Tails were quite expensive to protect but long OTM puts did protect short put-write in 2000-03 and 2008-09 from ruin. So, you are right. 2. There is another way to protect put-write: Do what Taleb said: 80% low risk bonds and 10-20% put-write. Though the returns in this case weren't spectacular. 3. Hunting tails could payoff handsomely if you didn't mechanically buy tails but did it with some good judgement. This is of course obvious but beyond my capability. 4. In general, in the last decade, because of the bull market, buying calls or writing puts even with eyes closed were winning strategies. No wonder a newbie like me could make money. 5. What's next? Regards,