Your a net seller of volatility......volatility up once in the trade doesn't help it at all plus the underlying is moving more making it more likely that it will swing outside of the wings.. shorter term = more gamma risk. Longer term= less theta working for ya...
How about warrants, I mean when corporations issue new share as well as warrants to purchase new shares, those warrants should not be affected by theta. Yer, they are similar to call options. Here I am just wondering, nothing seriuos.
theta is the rent you pay for having unlimited upside. If you own a warrant which has an expiry it would be no different than a listed option. you have unlimited upside and limited downside and thus must pay a rent.
Speaking of 'flies. Someone showed me a strategy that is set up as follows: On Wednesday of the expiration week (e.g. Aug 15 for August) sell next month iron fly on SPY (September) which is technically ATM but biased to the down side (OTM short call and ITM short put). The wings are $5. So the fly looks like 136/141/146, for example. Then close the position within next 10 trading days for any profit you're comfortable with. Usually that profit averages around 10-15%. There may be notional loss in the first couple of days but then that loss goes away turning into profit. I've tested (paper-traded) this trade twice so far and it worked as advertised. The guy who showed it to me has done some 30 trades (that is 30 months) and not a single one was a loss. I am not sure what the proper position size is for this trade. What kind of loss may happen in 10 days? He says there will be no loss but I highly doubt that.
Sounds interesting! Yet, I am way more fascinated by long-term strategies. To me, going long an atm dec12 fly is similar to short volatility further out in the curve.
On the right scale you get the long atm butterfly dec12 purchased by the end of july; on the left scale you get the dec12 index future.