Well options value at expiration are the easiest to determine because it is all intrinsic value. The high risk on the upside is offset by the range to the downside. If the market rallies really strong then I have to pick a bail point before the loss decays into maximum value. My upside breakeven point is not really high enough that a rally to it will allow vols to assist me here so basically I have an upside point where I will bail.
3 FLY positions = $4,900 gross profits. Yeah tooting one's horn is obnoxious but no one else is posting here so I have to cover for all of you!
I appreciate the posts. Ya, I get that you have to pick a bail point. I've been trading regular flys and reading up on bwb's. I heard/read that the T0 line was largely false and that bwb's are a lot more forgiving than the model shows. IOW, if we made a quick run up past your strikes by Friday (ya, a stretch), would the loss be as bad as the analyzer shows? Any reason why you prefer bwb over standard?
The analyzer fails on showing change in PnL prior to expiration. We know where it is right now with the purple line and where it will be at expiration. Between now and then the analyzer will not accurately show PnL because of changes in IV of each leg, the space in the b/a spreads of each one and how fast the market is moving. Obviously any move down has no effect because it just is moving deeper into the max profit and the only thing limiting it is time value in the ITM options which still have a few days to decay out. If the market moves sharply higher, then the value of the FLY could drop rapidly which is why I have to be more careful on upside moves but I try to give a big cushion. There is no hedging as it is a small position and the risk is limited. Now to your point , if we run up past my strikes by Friday, then it would NOT be near the maximum loss because of the time value premium. So if we are not at time 0 then the maximum loss is not going to reach that. That is why I tend to get out early unless market is dying a choppy death and I have cushion. But with current market if we get over 2720 I am more inclined to try and get out then wait if we have 3-4 trading days left. I prefer BWB like this because I can remove all downside risk which is "scarier" for me. If I wake up and futures are down 80 points I do not care. Also , although not so much in this position. I can buy ITM puts at a lower IV then the body that I am selling. That allows me to get a better risk profile and lift the left side better. If market trades sideways or slightly higher i have the peak for the market to move into and also expectation vols could drop. But I am using 3-6 days to expiration so to be honest it is more decay I am banking on that any significant change in vols. If market chops for 2 days or sells off, the FLY will increase in value.
I am not as model centric as dest on these nor do I play the stick deltas as he describes. Since the left side of the wing is lifted, I really don't care about the downside since my body is way ITM. If I felt a major move was coming I would slide the FLY down lower like I did in the FANG fly, the first one I did. That one really geared up as the market fell.
This makes a lot of sense to me and echoes how I usually feel going into a position (downside goes a lot faster). I too liked the limited or no downside risk, but the loss if it goes against me looked a lot scarier than a standard fly. I'm typically a contrarian, so bwb may apply nicely to that. If I'm wrong, the thing can run down with no issue. If I'm right, a crash upward would be fairly unlikely and I likely wouldn't incur max loss. I truly appreciate your knowledge and experience. Two more questions if I may. 1) Any method to picking your strikes? 2) When looking for favorable skew, does this mean you're shopping for "cheap wings" or something else?
To be honest, right now it is based on looking at the chart and adjusting the strikes until I get the coverage I like. I already know with the ES I am getting a skew so that the body strike is at a higher IV than the upper wing. To be honest I slap on a FLY in the analyzer and play with the strikes while checking the vols until I like what I see, while also looking at the price. The cost plays a facor as well. Don't want to pay 53.00 for a 60.00 wide FLY because it already is priced pretty high, probably because it is way in the money and the profit potential is small. More art than science as I don't trade these regularly week in and week out. right now they look good because of the high vols and downward bias.
I'm not entirely clear on sentiment. Are you mildly bullish but want to be right if there's still bearish movement or are you just bearish and selling vol? Do you use regular flys for bullish trades or another strategy?
I am bearish to neutral to small retrace possible, thus the range on of the position. I often use normal fys when vols spike and I expect them to come in so I can basically short the straddle with wing protection. I prefer BWB because I basically like the ratio spread profile but want to have profit locked in to the downside.