OK I see that now. It is a Reverse Iron Butterfly when the options that are bought are both ATM instead of a Reverse Iron Condor. Am I right about that? So (9 pages later) does anyone ever use Reverse Iron Butterflies?
If it didn't move right after earnings into a profitable range I would close the entire position and take the loss. I would lose a few days of Theta and possibly a lot of Vega if IV drops, but both of those risks are the same risks that Straddles and Strangles face as well. I would definitely not hold into expiration if it was a total loss.
If you sell regular Iron Condors for a 10% gain it would only take 1 loser to equal 9 winners but in practice you shouldn't let it expire with a total loss. You can usually get out of losers with only a 20%-30% loss. I wonder if the Reverse Iron Butterfly would be simialr if you bailed-out of a loser before it expires. Maybe for only a 30% lose or less.
If it's earnings related it would be more like a 70%- 80% loss after the first day if the stock just moves 0-5%.
Not the same risks. IV collapse affects you but you won't lose anywhere near as much vega wiith a spread because to some extent, what you overpay for the long legs, you receive for the sale of the short legs.
If you are buying options you want as much convexity as possible. If you are selling them you want convexity protection. How would you have your 800% returns that you bragged about if you were trading callspreads instead of outright calls?