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Anyone using the Bearish Butterfly on SPX?

Discussion in 'Options' started by Jonathan Yeung, Aug 31, 2015.

  1. Jonathan Yeung

    Jonathan Yeung New Member

    Just wondering if anyone is using the BB on index other than RUT. I would like to explore more on using it on SPX but the values would be different I think since SPX moves but a greater deal than RUT. Also I noticed that since I trade on thinkorswim, the delta and theta seems quite off as compared to John Locke's example using OptionVue. Anyone came across this problem and knows how to resolve this?
     
  2. GreenZone

    GreenZone Well-Known Member

    You can definitely do the bearish butterfly on SPX.
    You can keep the wing width at 50 points, or go wider. I know people who do 75 point wings, and even 100 point wings.

    There are definitely big differences in the greeks between multiple trading platforms.
    There's no way to "resolve" it.
    It's just a matter to testing the platforms out to see which one gives you the most accurate projections.
    At the moment, the most accurate greeks and T+0 are obtained with OptionVue.
     
  3. Jonathan Yeung

    Jonathan Yeung New Member

    Thanks for the advice Greenzone,
    With regards to Delta/Theta ratio, using the BB on TOS , I have almost never seen the ratio go higher than 1. How would you know which is an accurate projection since I cant get optionvue seeing that I have to subscribe it.

    Is there a free option?
     
  4. GreenZone

    GreenZone Well-Known Member

    If you want to follow the M9 (Bearish Butterfly) guidelines from John Locke, then you're going to have a tough time if you're not using OptionVue.
    All of the delta guidelines and D/T ratios, etc, were all created using OptionVue.
    If you try to use the same guidelines using TOS, then the trade won't work out as planned.
     
  5. Jonathan Yeung

    Jonathan Yeung New Member

    I see. Any suggestion which package of the optionvue is good?
     
  6. Gabor Maly

    Gabor Maly Well-Known Member

    My suggestion is to start with the most basic one with price feed coming from TOS or IB and you can always upgrade later to a QuoteVue data feed should you need it. Basic version works fine.
     
  7. Venkat

    Venkat Well-Known Member

    I trade ROCK (simplified version) on SPX and go with 70 wing width and more than 45 DTE. Coming to Delta/Theta ratio, it depends on how long you been in the trade and how many more days are there to expiration. During the initial phase of the trade when gamma & theta are low, it's okay to let delta dance around especially within the tent. Closer to expiration, you need to put a tighter leash on the delta/theta ratio. Hope this helps.
     
  8. GreenZone

    GreenZone Well-Known Member

    I would suggest starting with a monthly lease.
    The "OV7 Essentials" for $99/month (which includes the TOS datafeed hook) is a good starting point, and is what I currently use.
    http://optionvue.com/pricing.html
     
  9. Mohit

    Mohit New Member

    hi Venkat,
    What are your avg returns using the simplified ROCK, do you trade/prefer any other strategy and what returns do you get with those other strategies. do you use higher order derivatives like vanna, volga, delta bleed etc etc ...Your response is much appreciated. Mohit
     
  10. Venkat

    Venkat Well-Known Member

    Hi Mohit,

    My monthly return on the SPX Simplified ROCK is around 6.5% pm. For RUT, M3 worked better though.

    Coming to the higher order greeks, there seems to be only one retail software that incorporates them (at least, they claim to do) but they are expensive. For Locke strategies, OV is sufficient. Just like people profitably traded options without knowing much about greeks in the earlier days, I guess traders these days are able to manage higher order greeks through experience.

    Here are few examples:

    Volatility on Delta: When IV spikes, deltas get pushed out (delta distribution curve gets flatter and wider). Your delta adjustment points accordingly need to change.
    Volatility on Gamma: When IV spikes, gamma (of OTM and ITM strikes) usually falls which is beneficial for butterfly traders.
    Volatiltiy on Theta: When IV spikes, time value of DITM long call in an M3 spikes. So, when IV deflates, if you haven't taken precautionary measures, your DITM long call will lose its time value and you will see a dip in the T+0 line.
    Time on Delta: If you are under the debit wing of a put butterfly, your negative deltas keep increasing with time. Same goes for positive delta under the credit wing.

    Understanding the second and third order greeks is important but many experienced traders are able to control them by efficiently managing their first order greeks in the first place.

    Hope this helps.
     
    vega4mike and GreenZone like this.
  11. Mohit

    Mohit New Member


    Thanks so much, Venkat. Any place i could go to learn your simplified ROCK or can you share the trade criteria/methodology that you may have devised. I am planning on writing code to get the higher order greeks based on the book from Espen Huag. I already have the code that downloads real time prices for index options. Your explanation of higher order greeks is greatly appreciated, i would love to work with you directly if think it is worthwhile for you. (mohitbgupta@gmail.com) Thanks, Mohit
     
  12. Venkat

    Venkat Well-Known Member

    Mohit,
    Let's take it offline and explore the possibilities.
    Venkat
     

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