In the October edition of "Futures & Options Trader" magazine there's an article entitled "Testing A 'double-butterfly' System" on the SPX. The test was conducted by the folks at OptionVue for a 5 year period. There were 69 trades, with an 81% win record. It appears that many of the trades were "managed/adjusted" prior to expiration, as the avg. hold time per winning and losing trade was 11 days and 14 days, respectively. The winning trades earned $945.52 on avg, while the avg loser was $1,714.23. The total return over the 5.5+ years was 154%, with an annualized return on capital of 27.2% per year. Needless to say, 2008 was an extremely volatile year, which is not best for a range bound strategy, such as the butterfly. Nonetheless, looking at their equity curve, 2008 was quite profitable; however, 2009 has not been profitable, as the total return dropped from about 175% down to 154%. The trend in the S&P since March has been extreme (almost unprecedented). I suppose that the annualized avg return on capital of 27.2% would have been materially higher if the test was done on the ES options, as it allows for more leverage. Personally, I believe that the BWB is a better strategy... Although it is more risky, it gives a "better bang for the buck"... Walt
One of the things about portfolio margin is how it evaluates the cost of a trade. For instances, a long straddle has a very minimal margin, because the price risk is positive. Its not just adding crazy risk. PM evaluates risk more like the clearing firms evaluated me when I was market making. The reg-t they always evaluate the total max loss. I dont know about you, but I have never lost the COMPLETE max loss on a spread. They would run the spread through a risk matrix. Far more sensible. http://www.option911.com
Take it from me theres more to it than just slapping on a strategy and expecting to get a nominated return upon what you think you know. We are all individuals and trade as such, what one trader can make using a strategy and margin another may not. I've been using portfolio margin over the last couple of months trading ICS, flys, calanders and the like and absolutely love it, but it's not simply being able to triple the size of a spread to get a bigger return. I manage these things like my life depends on it, forever tweaking with adjustments and cutting delta to offset risk. So what Im trying to say is sure you can make returns like those quoted but it's far from easy & not everyone can do it, just like anything in life.
Mark (Option911), You stated that you prefer flys to the IC; however, today in your blog you mentioned that you advise your students to trade iron flys instead of traditional flys. This seems as a contradiction, unless the flys that you meant in the earlier post of this thread were Iron flys... Is that correct, or am I missing something? P.S. I apologize to Mark (Dagnyt), as this post would be more appropriate in an exclusive thread about Mark (Option911) Walt
Perfectly appropriate discussion. No apology necessary. An iron butterfly is equivalent to the butterfly. Thus trading one in place of the other is not a contradiction. The iron condor and condor are also equivalent. I prefer irons because I like to collect the premium. But it really makes no difference. The positions are the same. Mark
Hit the nail on the head my friend I like Iron Flys better because you dont have to trade any deep in the money options. For instance if you one was going to trade the RUT 580-620-660 call fly. Compare the width of the Bid ask spread on the 580 calls to the 580 puts. Now lets say you want to trade the put fly, compare the B/A spread on the the 660 puts to the 660 calls. If you trade an atm iron you are only dealing with ATM and ITM options. So, if its a bullish fly I like call flies, if its bearish put flies. If it is ATM I do the iron. people spend hours complaining about commish, execution is the key my friends http://www.option911.com
Wow, lot of good info in this chain, except from you. Your like the ET court jester except your not funny.
Today is expiration day. Your time for figuring out the problems in what you wrote is about to be up. So I am posting this assignment notice before I would shed lights on the issue.
Mark, I did some calling around on commisions from the two places you mentioned and found IB to be the cheapest, but lacks in other areas. TK has a min like OX and worked out to be either the same if not more when only trading few contracts. That left me with OX and TOS which both have what I like but I could'nt get a straight answer on what they would offer if I traded more frequently or bigger contract sizes. Also they would'nt waiver the minumn, so Im stuck with 1.25 per contract with a minumn... exactly where I started Can anyone tell me how I can get a better rate?