Overlapping calendars & butterflies

Discussion in 'Options' started by Eric1977, Jun 27, 2013.

  1. Eric1977

    Eric1977

    I have been thinking about a strategy for playing a range bound sideway underlying that involves putting on a calendar on the bottom of the range with a butterfly towards the top. Instead of having an exact price target, I have a price range where I want the underlying to hang out. By combining calendars and butterflies, I'm getting probabilities above 63% in most cases, which is much higher than the 45% at best I get for calendars and butterflies. Here's an example of a trade:
    WITH Intel (INTC) at $24,
    1) Buy 21/25/30 broken wing CALL butterfly
    2) Buy 4 July/Aug 23 Put Calendars

    This gives me break evens from $22.65-$22.52 with a probability of 63.69%! Obviously, the trade off is that the risk/reward is worse than just the butterfly or calendar alone, but perhaps it's worth giving up risk/reward for higher probabilities? Doesn't this seems like a better strategy in the long term?
     
  2. newwurldmn

    newwurldmn

    There's no magic formula.

    Each structure has its advantages and disadvantages.

    Trade calendars if you have a good view on the back month vol.

    Trade flies otherwise.
     
  3. Eric1977

    Eric1977

    The best part of options trading is that you can "have your cake and eat it too", so my point is that it's not a bad strategy to trade overlapping calendars and butterflies on the same underlying, because the vega risk is minimized and the probabilities increase.
     
  4. trador24

    trador24

    Seems like an interesting idea, worth thinking about ....and trying