Sorry eliot, can't comment on strangles/straddles - haven't done enough of them to really know what I'm doing, lol. I generally confine my commentary to strategies I feel I have done enough of to get a feel for them - straight calls/puts, debit/credit verticals, calendars/diag time spreads, flies/bwb (on indices), iron condors (on indices), collars/married puts, covered calls (no longer do these), naked puts (no longer do these) and long stock (no longer do these). Best Daddy's boy
Interesting you mention BWBs. I've been looking at them a lot lately. What is your commentary/opinion of them?
I'm a fairly simple sort of chap so I try and keep things plain. I see bwb's as low risk otm bets that need careful strike selection (the most tricky part of the whole selection process), I only do them on indices (preferably for a credit/even or very small debit), with no more than 5 to 6 weeks to expiry. The far otm option only acts as a margin reducer and turns what would otherwise be a ratio spread into a bwb. Best daddy's boy
I think it's a broken wing butterfly, aka unbalanced butterfly. I haven't found much about it, but here's an article: http://www.optionetics.com/articles/article_full.asp?idNo=15116 Daddy'sboy (or anyone else who wants to jump in here), I want to play the OEX about a week before the next Fed meeting. I did a paper trade on a long straddle last time and it would have been very profitable, but expensive to buy initially. Is there any way to play real volatility with less expense/risk? I think no matter what Helicopter Ben does the market will react. (Of course it could be a yawner like GOOG earnings.)
"OTM Bets" is a good way to describe BWBs. You have to be either way OTM or way before expiration to get a small credit, and then what is the point? You wait and wait and wait and hope that the wheel of fortune lands on your strike, and the odds of that are very very small. If you do them for the credit that also makes no sense since there are other strategies that are better for that. The risk graph is horrible at any time before expiration. The underlying can make a move right to your short strike a week after you open and you will lose money. Of course, some "gurus" at Optionetics say not to believe the risk graph. For me, I am much more sold on what I call the SWB (shortened wing butterfly). Instead of going out from the fly, you bring one wing in toward the body. SWBs are done for a small debit, but they can be done even close to expiration, close to the money, and the risk graph has a positive slope in any time frame.
Can you give us an example? Do you think this can be applied to the OEX play I mentioned above? Thanks.
Yes, you can use them like a straddle, braketing the market, with less debit. I do a Yahoo BWB group with these. Most of mine are modeled on the SPY for liquidity reasons, but here is an SWB on the OEX that was done few weeks ago (July 11). OEX at 583.68. July puts. 1x580P -2x565P 1x555P