The staggered butterflies

Discussion in 'Options' started by Corto, Feb 13, 2019 at 6:48 PM.

  1. Corto

    Corto

    Following advice from the big guys in this forum I took a dive and tried to find the hidden wisdom in the good old butterfly threads.

    Now the question I have may prove I have nothing learned, but I will go ahead and ask and will appreciate feedback. Thank you.

    In this thread from last year
    https://www.elitetrader.com/et/threads/pricing-butterfly-spreads.323503/#post-4700016
    Destriero posted this screen shot. While dissecting it I first thought: wow, great idea to have them staggered like that and then I noticed the two 10AUG flies make a condor. Same about the 20AUG ones.

    So the question is why? Maybe to manage each individually based on market movement?
    Screen shot.png
     
  2. I do not know the answer but Charles Cottle in his book “Options trading: the hidden realty” talked about harvesting baby butterflies embedded in the original spread. Here is a YouTube link
     
  3. No options spread is an edge....butterfly, condor, jelly roll, reversal, back spread etc etc...on infinitum
     
  4. Why butterfly vs condor?
     
  5. Corto

    Corto

    My question is simply why place two butterflies (8 legs total) when a condor with appropriate strikes will have the same profit diagram and involves 4 legs only. What am I missing here?
    Hope destriero will chime in.
     
  6. srinir

    srinir

    From my understanding, @destriero was not trading those butterflies. He posted that snap shot in reference valuing those butterflies. Read the next post in that thread
     
    destriero likes this.
  7. ktm

    ktm

    I trade these as well. My knowledge of the greeks and intricacies of the modeling of these positions is on a caveman level compared to des, so we'll wait for him on that front.

    In a market like we have today - relatively calm - these spreads can give you a good bit of exposure and profit range for a modest outlay. The staggering can occur as a repair strategy or to enhance the position, but it isn't always necessary. If you have a 1/2/1 or a 1/3/2, it sometimes makes sense to establish another by buying one of the shorts as the "1" in a new spread heading the same direction with the same ratio.
     
  8. Corto

    Corto

    There must be something about the staggering, otherwise why pay commissions for 8 legs (4 per fly) instead of 4 for the condor? On the other hand, given the volume some people trade, the commissions they enjoy may not even come as a decision factor.
     
  9. We can't see from that screenshot when the flies were entered. My guess is he entered 1 fly, then another when market conditions changed. The result is a condor but he essentially legged into it when price action dictated.
     
  10. Corto

    Corto

    Destriero, please make some light.