Anyone experienced with selling credit spreads, both ways, for instance stock at 50, selling the 40$ calls and puts, buying the 35$ calls and puts (this called a butterfly?) for a credit? I'm thinking front month. Any insights? Best to do this on stocks with high volatility/premium?
You need to read up on this and get a very good understanding of the basics; I would suggest not trying what you are proposing because you will be slaughtered.
esc_trader - Metooxx is absolutely right. Options are not something to jump into without a complete understanding of them. BTW, the position you noted (stock @ 50, short the 40/35 call spread, and short the 40/35 put spread) is not a butterfly and will basically lock you into about a 5 point loss from the outset. Selling premium is about taking advantage of overpriced conditions by being on the selling side - example, if options are overpriced and you're expecting a stock to rally, you'd be better off selling in the money puts rather than buying calls. Likewise, with spreads you're often better off selling a credit spread based on you're directional outlook instead of buying a comparable debit spread. The pricing dynamics and various strategies involved in options need to be fully understood before venturing - otherwise you'll just end up flushing a bunch of money down the drain. Good luck.
In addition, doing flys for a credit is an old game; if you want to find them today you need: 1) $5,000 month data feed; 2) $3,000 month in T1s; 3) institutional commission rates, factors lower than rates discussed in any public forum; 4) lots of capital; 5) stamina to live through the busts; 6) technical ability to filter through 125,000 strikes, 5,000 to 10,000 price changes a second, to identify <1,000 opportunities a day out of a data set of 100,000,000+, in less than 25 mil. seconds; 7) guts to leg into them; 8) sub-second execution.
When I was on the floor we could'nt even do them with size because they disappear so quickly. Except for that sugar bull market when we had our pick of doing a,b, or c flies for credit. Man, those were the days. Forget about doing them upstairs. You can, however, sell a straddle over the weekend and then buy the wings after considerable time decay BUt there will be wailing and grinding of teeth due to the nature of the unlimited risk. I would'nt do it. I have 3 kids to feed everyday. There are better less risky ways to sell premium-buying calendars with a good smile curve. Good luck
You can actually put these on with a little bit of leg risk on the QQQ. However, I have been only able to do them on the $1 strike increments (i.e., 35-36-37) so it actually isn't that great a deal when you include commissions.
Are you hitting them at the same time, or legging into them over an extended time frame, i.e., greater than 30 seconds, betting on direction for a mispriced leg?
Definately legging them in. Taking a directional bet (got to wait a bit for the QQQ to move in my direction). Then getting the middle and the other wing in at the same time. Really no way of doing it for a credit otherwise.
freehouse, They are still out there, a little less than 1,000 a day, but the majority of them disappear after 1-2 seconds, don't try hitting all the strikes at the same time though, you will get filled on every leg but the one you want. You need to identify the mispriced leg, standard pricing models don't work very well, wait for a fill on that, and then complete the 'fly. Fill ratio sucks, watch the busts, they are very painful and it doesn't work well @ $1.95 commissions.