opening and closing a butterfly in one day. (PDT)

Discussion in 'Options' started by cdcaveman, Aug 29, 2012.

  1. So you have a long position in the stock.. you can very easily sell the synthetic equvalent in options and lock in your gain into a conversion... is there a way to close out a butterfly respectively? if i close a buttefly in the same day i open it.. i will automatically get pattern day trade trigger.. just curious here.. is there no offsetting neutralizing trade?
  2. Sure, if in a call fly you can close with a put fly, and vice-versa.
  3. perfect... thanks for taking the time

    the only thing is thats alot of commissions to close both spreads down wouldn't you think.
  4. Well they're rates arbs at that point so there is no need to offset. Just choose wider/narrower flies if you continue to trade the same ticker. It may get a little hairy to keep track of many embedded flies.
  5. quatron


    You don't have to close it. It's safe to hold it through expiration unless the stock is near one of the legs thus you could be exposed to pin risk.
    Another way to understand the resulting position (long call butterfly against short put butterfly) is to think about it as two box spreads. You can close out any of the box spread if one of them is subject to pin risk and let the other expire. Or you can decompose the trade to 4 synthetics and close one synthetic against your stock to avoid pin risk. A lot of options :)
  6. Yeah, the combined short put and long call fly results in a long box at x-y and a short box at y-z. In any event, the rates-risk is on the spread differential and you have opposing rate spreads. Risk is nil outside pinning as quatron stated. If you're going to keep these on you need to learn a bit about dissection.
  7. What is PDT? Is that Pacific Daylight Time?
  8. The put fly is slightly priced different then the call fly because of the borrowing costs related to short stock? Is that the rate differential your talking about
  9. pattern day trade restriciton

  10. Oh I see .... I had to Google it. And the reason I never heard of it is because it only affects accounts with a balance of less than $25,000. I didn't realize that some ET members had such low account balances.

    Do you have support services in your area to help you out? Such as food banks, night shelters, places for some warm soup? I hope your OK.
    #10     Aug 30, 2012