I like these pregnant flies a lot, but not on the SPX. Also, my preference is to open <30 days out (however, the farther out, the cheaper the fly) and close/roll in last 5 days to expiration...but it all depends on your price action/volatility forecasts and personal style. I shoot for risk/reward 1:2 or 1:3 in general on broad index products. With higher IV it's possible to get much better. The main thing is that you can have a much smaller position size on vs. a wide iron condor for comparable reward. It's tempting to place the wings on an iron fly further and further out in an attempt to increase the profit zone but a cursory examination will reveal that risk/reward decreases at a faster rate than the profit zone increases. So perhaps something to bear in mind. FWIW, I did a basic overview of these flies earlier. I've done so much linking that I'm linking to a post that links to a further post Also, I outlined earlier some key risk/reward differences between flies and condors that may confirm/deny what you already know. I am hugely biased towards these positions versus FOTM credit spreads or wide iron condors so bear that in mind if you read my stuff Lastly, if you haven't tried these before, you have to be mentally prepared for a worse win/loss ratio compared to a high probability FOTM credit spread/iron condor. These positions are the logical conclusion of going closer to the money but in a market neutral fashion. [EDIT: I see I'm late to the party, Aardvark, Phil, Riskarb and co have already covered the details...Doh!] MoMoney.
Momoney, thanks for your input. if you would not use the spx then perhaps xeo/oex, spy/xsp? also, you mentioned that the FOTM IC is a higher probability trade, but my basic question is would there not there more opportunities to close the spx iron fly 1250/1185/1305 trade for a profit vs FOTM? and also, is this trade not a bet where your long strike will not go and thus similar to the FOTM in terms of win/loss probabilty without the 10:1 r/r. after all, the breakeven is between ~1207/1292 and r/r is 1:2
I have credit spread on SPX 1225/1210 . It seems there is strong resistance at 1235. Here are the following options. 1 - Close the spread and take a loss of 1.25 ( 1.75-.55) per spread. 2. Convert into B-fly. ( 8.40 - 3.10 ) by buying the debit spread for 5.30. It seems to be expensive. Sell 1200/1185 credit spread (0.65) to finance some cost at some risk 3.Wait one more day to gain more than theta - more risk. 4. Just want to how to do box for this - Do I have to buy a call spread - sell 1210 call and buy 1225 call - 26.00 -39.00 5. sell B-Fly - 1240/1225/1210. 6. Roll it down- Is it good option in the last week of expiration. I want to know your thoughts.
Lurking from the depths... there's an easier way: On the risk profile tab, set date to desired expiration and set slices to desired sigma. It returns the exact numbers. It's even dynamic when the market is moving.
Purely to keep it clean, where there is the possibility of having DITM short options, I would stick to European exercise products: XEO,XSP,SPX. My disdain for SPX is purely personal but there are other valid reasons not to use it for iron flies that have been mentioned by others. Also like MNX and NDX since being listed on multiple exchanges last year. From an expiration risk profile point of view the profit zone of a wide IC is generally wider than that of a fly, therefore higher probability. Yes and no. It depends if you are willing to pick up pennies or not from your fly. It doesn't decay that fast >45 days out. There's not much profit on a fly outside of 10 days to expiration on an index product unless you get favorable IV activity. PLUS the fly has to be in the long theta/short gamma zone for you to be able to do this. Out of your $42 credit, you will likely have to wait at least a couple of weeks to see $3 or $4 of that if we haven't moved much and constant vols. If that $3 or $4 is good enough return on your $22 risk then so be it! It depends on how you want to manage it. The long strike being crossed is not neccessarily the bet that is being made. Your profit zone will be well within the long strikes so no, the probability is not the same. The equivalent iron condor is probably about 3:2 risk/reward. A 10:1 iron condor will have much wider profit zone -> higher probability -> better win/loss ratio. MoMoney.
You probably have already listened to Dan Sheridan's general remarks regarding various income strategies vs speculative. If not, he is on cboe.com in the webcast archives.
Toom my call spreads off the table and just have my put spreads on. Wanted to make sure I have room to adjust my puts if I had to without being constrained by the margin requirements for a condor. It was a tiny position to begin with anyway so just wanted to take it off since I may be away from the computer most of the week. JUNE POSITIONS Sold 225 SPX JUN 1140/1160 Put Spreads @ $0.75 CLOSED for $0.15 or net profit of $0.60 or $12,375 after commissions. OPEN: Sold 225 SPX JUN 1330/1350 Call Spreads @ $0.15 Credit = $3,375 CLOSED for $0.05 or net profit of $0.10 or $1,125 after commissions. OPEN: Sold 225 SPX JUN 1195/1175 Put Spreads @ 0.20 Credit = $4,500. Hedges + 200 SPY JUN $133 Calls @ $0.05 for $1,000 + 50 SPY JUN $121 Puts @ $0.35 for $1,750