I was having a bit more of a think about what you said above. Your position in ndx would be long the backspread and a further otm sold put. Wouldn't you have the same problem as me if it expired just above the 2 long puts?
It's simply an asym-fly. I build a high probability asym bull fly, invert sign, and convert to the synthetic so that two legs are otm for microstructure. It's at edge, good reward profile and adding vol hits PNL mildly but drifts delta (in your favor). It's a go-to as it has a pseudo linear payoff that drifts. Behaves like a RR but improved performance within 2-sigmas.
Nothing beats a ps for high skew, low vol environment. The issue there is that I can build a skew lock with a credit left tail and trade gamma around it. Enough edge to pay for the backspread or combination of approaches (long bear back, bear asym fly, long ps) and have a flat (rtn) Vega figure that explodes in the left tail.
Would you let these run to maturity or roll before? 60-70% is quite alot, is part of it to hedge your long D1?
No, the D1 is distinct. Stuff that cannot be traded in vol at edge. Caveat is that a short fly is essentially a linear payoff with drift to various moments so I will often trade D1 in those unless it's a 1-2 day hold.
"Long OTM flies (long g, all otm) with the distant wing in another duration, etc." What would be a real world example of this using SPX? (strikes, days to expiration, etc.)
Here's one with a 1W expected hold (2W term). Delta-normed to one ES. Priced to Monday (BE at today's close = spot). 3X risk at 2-sigma down/up. Standard sfly (single duration). I would not alter term-structure here. Only on OTM flies (all strikes).
All strikes OTM. Discrete split strike (brkn) but in M2 (cal-risk). Outperforms symmetric-fly at peak and you've flipped Vega to +. More of an impact to PNL than being symmetric-strike.
Much appreciated. Thanks for the clarification. I would definitely need to "reprogram" myself for the first example as I am not used to selling butterflies. I have mainly been doing (among other things) long broken wing butterflies (maybe something like 5700 / 5630 / 5600) for a debit. I was thinking your second example might be way OTM (5000s / 4800s / 4600s or lower) with the far OTM expiring sooner.