No matter what, you're making a guess, hopefully a well thought out guess based on current market conditions. Most of the money we make trading options alone is very simple (I know I keep using that term, but mean it in a good way). Search for stocks that you wouldn't mind owning. Perhaps good dividend stocks. Sell puts a strike or two down from current price, sell calls up a strike or two. The basic outside "strangle." Time decay on both, IN YOUR FAVOR, not against it. If stock stays in a trading range, as many do - you're golden, both options go out worthless. If stock goes down, you have a nice position in a good stock "put to you" and you make money on the calls that expire worthless. If stock goes up to far, puts goes out worthless, and you "may" buy the stock to offset your shares being "called" from you. Simple, simple, simple. And we did very well last year doing just that. I still maintain that trading the underlying itself is generally easier, as others here have noted, but that's just me, LOL. Don
My computer is on the glitch and have to borrow a computer at inconvenient times. Sorry for the delay. But to the query on the long call, debit spread hedge, STRADDLE, it was A.J. Brown. Claims to have gone from $5000 to a million. I couldn't find the URL right now, but did confirm his name. Look him up and you will probably find the particular URL he mentioned. He's selling lessons, so I take that with a grain of salt, as one does not expect million dollar winners, to be selling lessons. I'm reminded of Joe Ross and Wilder some thirty years ago, who were king of the system sellers at that time. Times have changed and I see nowadays we get teachers offering online classes. I guess while I was away for a couple of decades, something must have happened to make the system sellers market prohibitive and now it is all teaching, with no guarantees. Must be some new laws and regulations? I'm puzzling over the Butterfly and the Condor. Total novice at this and just trying to get my feet wet by learning the TOS entry and exit system for these more complicated trades. That cater to small retail beginners. These being touted as low risk and low profit trades. I'd like to get a copy of the " One Strategy for ALL Markets by J.L. Lord. " The hype makes it sound interesting. He also says the two best strategies are the broken wing butterfly and the unbalanced condors. I've been getting confused over the weekend, as one of my notes mentioned that the butterfly was two debit spreads. While looking at it from an unfamiliar amateur view, one side seems to be a credit spread? Haven't figured that out yet. The Condor I am taking notes as a credit spread and a debit spread? I sure don't like credit spreads. But these strategies are touted to be for those who don't have the margin capability like Don Bright, to just sell. So you need these selling, or collecting time decay strategies, to go along with Don's strident message that selling is the end all, to beat everything. ( grin ) Just having fun picking on you Don, a bit. Your message is received loud and clear. It was nice to get somebody in there talking about buy options as a sometime wiser choice for beginners. A balanced discussion is always good. Thankyou all for contributing to the thread.
A fly is simply a condor in which neutral delta = the center strike. A condor is neutral delta between the *two* central (or inside) strikes. A 10-point condor encompasses 30-points, while a 10-point fly is 20-points. Fly: 1 x 2 x 1 Condor: 1 x 1 x 1 x 1 An IBM call fly -> long 190C, short 2 200C, long 210C. Dissected, it's a long 190/200 call spread and a short 200/210 call spread. Or you can sell the 200 straddle and buy the 190P/210C strangle. The fly is neutral delta to 200 -- THE BODY STRIKE. An IBM call condor -> long 180C, short 190C, short 200C, long 210C. Dissected, it's a long 180/190 call spread and a short 200/210 call spread. Or you can sell the 190/200 strangle and buy the 180/210 strangle. The condor is neutral delta to 195 -- MID STRIKES. Call condors = put condors = iron condors. Same goes for flies. Ugh.
Ha! Ha! "Ugh!" I was hoping an expert like you would chip in ATTICUS. As a novice I´m going to think about your words of wisdom a bit. Right now it is sort of going on FAITH in your words of wisdom, not so much my learned process of thinking about it. Anyway sounds good from somebody I respect, so that is enough. I´ve been off the internet for five days, due to internet connection protocol LAN problems and finally got it working on this Tuesday night. I mean with my own computer. Can´t say I´m a tech whiz though. Was just trying numerous different things, clicking here and there and everywhere and suddenly the darned thing started connecting and working and have internet back again. What I did haven´t a clue, but I´ll settle for it is working. Whatever miracle occured. Think I´m too late to trade the weeklies this week. Though I might paper trade the late Thursday, into Friday suggested STRADDLE trade, to see what happens, on a weekly. Arrived back home on last Thursday evening. 7 hour trip from the island. Only a 120 miles, but it is third world traveling. Chicken and pig bus and all, carrying backpack and big bag with my desktop computer gear. Tight fit on the seating, stop and go letting off passengers and picking them up local type schoolbus. In the interests of staying in theme, of the LONG STRADDLE. I had read that a Long Straddle can be worked using two CALENDAR spreads. Since I did my first CALENDAR on my own, using the entry and exit in TOS I take that as a milestone in my learning process. A week ago. At any rate, I noted that a CALENDAR can be done on CALLS, or PUTS. So in a STRADDLE I presume therefore you would be straddling both a CALL and a PUT CALENDAR. I found this interesting, because on my CALENDAR TRADE, I closed out early Thursday morning past, so I could catch an earlier water taxi from the island to the mainland, so I quit early for the week. At any rate I noticed that the CALENDAR earned less than my paper trades in the CONDOR and the BUTTERFLY. So far just one of each and it was more a learning lesson on how to enter and exit using the TOS platform as a unit, than the trade itself. Anyway, to make a long story short, it would seem a LONG STRADDLE composed of using CALENDARS ( two of them, PUTS and CALLS ) would give you the same return for selling THETA, or collecting TIME DECAY, as both the CONDOR and the BUTTERFLY. Which seemingly in this amateurs observations be a better deal. Then I looked up a bit of reading and it was insisting on doing this stuff during a horizontal, or congestion place in the market action. Then I reflected back on watching ATTICUS bouncing all around the market trading multiple butterflies on stocks. Now I´ve avoided stocks, for some earlier conviction it was dangerous. Now I´m not sure how that came about. So I´ve only concentrated on learning on indexes, the QQQ and the OEX. Small account and I figured if I couldn´t learn there, it didn´t make sense messing around with things like stocks that I didn´t understand. But on these TIME DECAY collecting strategies using weeklies, that just perhaps my novice thinking, might look up stock earnings reports, as in an earlier venture studying the kING of TRADERS, Ryan Patrick. and the talk about earnings reports leveling out before the EARNINGS REPORTS I should be able to look up some stocks that the earnings reports are 10 days out, and thus eligible for a butterfly or two. Just a thought, if I can get my computer room back in action again. Stocks seem to level out and go sideways during that time period. I´m not quite clear what the difference would be in dollar performance between a CALL CALENDAR and a PUT CALENDAR. I presume there would be some difference? Possible a loss of .30 cents on one side or something? Seeing as how to get maximum profit you want to EXIT when the market crossed the initiation of the underlying trade number, but in the real world, these may not happen and you would be a bit off when having to EXIT.
+1 And this sort of butterfly, not the option kind. It would be a nice relaxing hobby photographing butterflies. And if you prefer condors this is a nice shot.
The wider the fly the more gamma and vega exposure you incur. You trade flies to limit the risk of a straddle. OTM (long) flies are marginal long gamma Neutral flies are short gamma ATM flies are (typically) neutral gamma One way to look at flies trade directionally is via the gamma-modality. You're bullish on XYZ but the vol is too high to go long an OTM vertical or outright call and you want a better R/R than the bull put spread. You don't want the convergence risk or bleed of a long back-spread, so you buy an OTM fly for change and XYZ touches neutrality. This will often result in a double within days. This is due in part to the bimodal nature of gamma in the position. The spread becomes more enticing as it approaches neutrality in terms of decay and distribution (neutral delta target). The demand is obviously seen in it's initial delta as well, but not so much in the initial gamma.