Sorry, but no. A butterfly is never "directional" because it narrowly defined profit range. Placing it OTM doesn't make it a directional position - it's still a neutral position because it will not gain or lose with the market. It has a fixed max profit and loss. A directional position will gain as the market goes in its favor, and lose if the market goes against it and you didn't hedge. Calls and Puts are really the only "directional" positions you can take. A butterfly is neutral regardless of whether you place it correctly or not. Was the butterfly that you placed ATM that had the stock shoot far past its wings "directional" too? No, it wasn't...but don't let me hold you up from licking windows and giggling. If you do it right you can set them and forget them. If you need to "tweak" it you're probably choosing a stock that is moving around too much or too little to be a viable candidate for a butterfly - and instead you should be using condors. In all honesty, if you use options for more than basic calls, puts and two-strike spreads you are going to lose. Your loss may be gradual due to a perceived sense of security in that you can't lose more than your initial investment...but for this illusion of "limited risk" you are giving up time. Not only does time work against you in long options positions due to decay, but if you didn't estimate direction correctly your only real play will be limiting your max loss.
His fly was not delta neutral; it was long. No shit, flies are bimodal to delta? Regardless, the only neutral fly is the one with spot pinned to the forward and neutrality is fleeting. It's the exception, not the norm. An ATM call fly is long delta. An ATM put fly is short delta. The strike width is moot. So a GOOG 1000/1050/1100 fly is not a bullish position? It's somehow "not directional" to you bc it can flip delta at the body? Don't (continue to) be a moron. This place is littered with assholes like you who picked up a book on derivatives written by ESL students who failed algebra.
I really want to thank you for this insightful post. I'm sure we all greatly appreciate your willingness to share your extensive options trading knowledge. I know I learned a lot.
You obviously don't know what being "delta neutral"...no...scratch that, you don't know what "neutral" means. Refer to the dictionary and then make some adjustments to your response. Ohh, is that what you learned by signing up for the secret newsletter at "stockTraderMaster4000.biz". You were wrong, now you're trying to make this about delta? LOL...nah bro. Go back to being wrong and giving me your money with your directional butterfly "trades". If I'm a moron then why are you the one who's wrong? $17 dollars is pretty gangsta... But not quite as gansta as coming onto a forum and calling butterfly spreads "flys" instead of "flies". So was occupy wall st mostly people from this website who lost their money after their "EXPART BATTTESTD STRAYHAGY" wiped their account?
Let's take an example - SPX Nov13 1250/1500/1750 put fly. Yeah, that's neutral all right. Some people should think before they start posting shit...
Curious...then Your definition of a fly is -1 +2 -1 ? Most traders "buy" a fly which is what you call short +1 -2 + 1. Which is also referred to as binary in that you DON 'T want to hit the edges you want to land in the middle..... What we may be having here is a failure to communicate. And by directional I simply mean bullish or bearish ...
We went over this already. We're talking about the position itself, which in this case was a butterfly spread - a neutral position with a defined profit and loss. Confusing position with placement of said position, are we? You should think before posting shit, I agree. If he thought the stock was going to go up, he should have just did a bull spread. There is really no reason to use a butterfly OTM.