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Butterfly Spreads

Discussion in 'Options' started by Larry Brogan, Jan 24, 2016.

  1. Larry Brogan

    Larry Brogan Member

    I'm in the process of studying Butterfly Spreads and there is no shortage of material to study. I think I understand the idea of the construct but can't find anything that clearly demonstrates what the profit and/or loss would be at varying points. Is this not possible because of the number of variables i.e. underlying price, IV, # DTE etc.
    Any help or insight would be greatly appreciated.
    Larry Brogan
  2. Gabor Maly

    Gabor Maly Well-Known Member

    Larry, Have you modeled your butterfly on TOS analytics, ONE or OV? You can clearly (let's say it will be close) project your P&L as function of price, IV, DTE movements.
    Let us know and we can take it from there.
  3. Larry Brogan

    Larry Brogan Member

    I use TOS and I just tried one as an experiment last night. I set it up using the SPX @1910 2 short calls and a 1705 ITM call and a 2110 OTM call. This was 1.5 SD which I just picked arbitrarily. I think it was priced right but I don't know how to take a look at the probability factors and even know if that was a good trade. Any thought on using the SPX or the SPY??
  4. ACS

    ACS Well-Known Member

    Due to the cost of commissions, the SPY is only appropriate for practice. Everyone here uses the SPX for real trading. The same is true for the IWM/RUT.
  5. tom

    tom Administrator Staff Member

    You can use a combination of SPX and SPY. SPX for the main position and SPY for small tweaks. For instance, if you want to add +5 delta to an SPX position, you could purchase 50 SPY shares or a long 50 delta SPY option.
  6. Larry Brogan

    Larry Brogan Member

    Helpful, thanks.
  7. status1

    status1 Well-Known Member

    Actually I had some success with IWM iron butterflies and the commission did not bothered me it was the risk that was more of a problem That was last year when vol was somewhat high but the price did not move too much
    I would place the short call and put at the money to get the most premium and place the longs 10 points out to offset as little as possible the premium Basically an at the money straddle with the wings 10 points in either direction

    I would place it 30 DTE but only keep it for a few days I try to put it on a Friday that way the time decay over the weekend helps the trade and if it does not move too much I would keep it for 1 week and I would make around $300 per week but I would have to watch it often so It does not go too far Looking at IWM Feb 4 weekly I could set up a trade and collect 6.62 and risk 3.38 wit a 10 lot by Feb 1 the p/l in TOS shows $313 I realize this can be risky but if the trade is closely monitored it can work although I would wait for the market swings to slow down to a more reasonable pace
  8. Larry Brogan

    Larry Brogan Member

    I use TOS but I don't know how to use the tools you are alluding to, would appreciate any assistance. Perhaps via Skype or WebEx.
  9. BillK

    BillK Member

  10. SVL

    SVL Well-Known Member

    Last edited: Feb 6, 2016

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