Hey I'm looking at a butterfly symmitracal and the delta is almost flat now when i spike up the volitailty it goes up like crazy and the value of the spread becomes minus does that mean that volatility kills the butterfly ? so is it better to open a butterfly when voltialty is high ? and is cheap to buy ?
You have asked this question in one form or another many times. IMO, your focus is wrong. If you buy a butterfly it targets a price range. If you sell the fly it targets outside that range. If you have no process to predict price change or lack of it, the change of IVOL over a short time will make no difference unless you can trading in and out of longer-dated spreads.
When I check the slice prices on TOS I see that in a spike of 50% volatility I will be - a big amount also if I’m at the money so I’m asking now if I buy a butterfly which I don’t care where it will expire do I need to worry for volitalty cause it will knock me out or I will be safe as long as I’m within my trade to point out it’s like 60-90 days out so Vega as much as it’s high it will t affect me
This is my entire point. All that matter is where the stock goes. That, and your entry price will determine if your exit price is profitable.
But what I want to understand and thanks for your patience is let’s say I have symmetry butterfly and volatility kicks in will my P/L spike up or I can sleep at night and my PL won’t change because of the volitaily
I think back to the knowledge I was required to obtain and display before being allowed to do my first option trade...
Consider what your plan is for the butterfly trade! Do you plan to manage it? What is your goal. Ignoring everything else, a long butterfly is a negative Vega trade, so purchasing it in periods of higher volatility is preferred if volatility is expected to collapse. You mention concern over a volatility increase while holding the fly... You need a plan for what you intend to do. Advise to trade very small until you get a better understanding of option dynamics.
You need to think it thru from a common sense point of view.. If it's an ATM fly and vol spikes huge,do you think the vol is implying the stock doesn't move,or makes a big move..which scenario benefits the atm fly?