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?
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
No options spread is an edge....butterfly, condor, jelly roll, reversal, back spread etc etc...on infinitum
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.
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
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.
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.
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.