Zero priced butterfly, worth commissions?

Discussion in 'Options' started by FSU, Aug 20, 2015.

  1. FSU


    So every week there are certain butterflies that are offered at zero in the SPX. Today it was the SPX Aug 2000/1995/1990. At the time it was about 50 points out of the money and it expires tomorrow morning. The only cost/risk is the commissions, which for me is about 4 cents (1 dollar per contract including exchange fees). So a 100 lot butter would cost $400. The question is it worth putting on for commissions?

  2. I would say NO. The wings are way too close together - 95% chance that SPX trades outside of the 2000/1990 range.

  3. You sound like you really want broken wing butterflies. You can put on a nice wide one for even money or even a small credit.
    Unlike a regular butterfly you can't fire and forget BWBs because of the risk of the outermost wing.
  4. Better to be long calenders spreads here... Just my 2 cents
  5. ellevers



    I would double check the "including exchange fees" with your broker. The CBOE charges depending on the premium .35 per contract for the strikes you were talking about plus .20 surcharge for Hybrid 3.0 of .20 per contract.

    I was also trading the Aug 2000 and 1990 puts today. Buying the 2000 puts for .20 and .25 and the end of the day around 2:58cst they went .40 and .45 bid trading .50 and .60 when the market broke to new lows. Of course I sold mine at .30 but...still green on the sheets. Seemed like people were looking for cheap gamma to buy.

    I have included a July 2015 fee structure of all the option exchanges. Hopefully it will help.

  6. rmorse

    rmorse Sponsor


    Then there are also the regulatory fees. They currently run around $0.0947/contract not including the Sec 31 fee on sales. FSU is very familiar with these fees. He was sharing his cost structure as the only risk to the trade. Unfortunately the expectancy of making money on the index moving into that range for just the open, is not worth the cost.

  7. ellevers



    True. I agree that some all in commission rates will include the ORF OCC and FINRA fee but not the maker / taker model fees. Some brokers will pass those extra Royalty CBOE fees on because they are so expensive. For example, and I know you know this, but for the people that don't, if you "don't" have an all in rate and your commission rate, includes clearing, was .25 per contract plus .095 Reg fees plus you took the BATS market which charges .80 that would be a total of $1.145 per contract traded. I know it is semantics but some brokers say all in for certain fees. And some people might find the pricing structure of the exchanges interesting. But if FSU's broker covers all those fees then definitely take advantage of it.

    But to the original question if you have spread entry capability and you could buy it for even and was looking to flip it for say a nickle you would pay $400 to get in and $400 to get out 100 X .05 winnner = $500 but the trade cost $800 round trip. Well everybody can do the math. I do think FSU that towards the end of the day you could have flip it for .10 or more between 3:00 and 3:15cst. But if you were to hold it for the opening print tomorrow I think it would be a lottery trade.

  8. FSU



    My $1 commission is all in with the extra exchange fees that are charged with SPX. I think you all are right that it is not worth the cost. I am just amazed that someone would sell a butterfly for zero. These are spreads that are filled in the COB as spreads too. It is hard to resist a spread for zero, even if it doesn't make sense with commissions.

    Many years ago when I was a floor trader in the OEX, another trader who needed to have a certain amount of trading volume for regulatory reasons, offered me a way out of the money put vertical for zero. He had 5,000 to sell. My commissions at the time were about .30, so this would have cost about $3000. I decided it wasn't worth it and passed. A friend who stood next to me ended up buying the whole thing. The next day the market collapsed and he sold the whole thing out for .50 netting $250,000. The spread went up to about 2 after that and ended up expiring worthless. I have never forgotten that. That's why its so hard to pass up any zero priced spread for me.

    Ended up putting it on 20 times only today, just in case.
    i960 likes this.
  9. i960


    I can imagine why. I would be kicking myself for years on that one. But how would you have even known...