BWB or double Fly

Discussion in 'General Discussion' started by Hugh, Jun 25, 2015.

  1. Hugh

    Hugh Well-Known Member

    Does anyone have an opinion on whether a BWB or double Fly is better if the spot hits one of the Fly's original BE points?
  2. N N

    N N Well-Known Member


    I'm really not sure but I know I'd much rather trade a 3 leg spread then a 6 leg fwiw that' worth! Slippage/Commission to adjust something like that seems like a b*tch.
  3. Hugh

    Hugh Well-Known Member

    NN I know what you mean, but I'm really poor at getting market direction right so prefer high theta non directional trades than directional trades ie double fly vs BWB. Also with 8 legs to pull on there are many options to adjust delta - but it can do your head in!

    Traded alone I think BWB is great for fast trending markets and dbl fly good for slow moving mean reverting markets. However if you are trading a fly with a condor converting to a BWB will help delta and theta in one hit.

    what do you think?
  4. Venkat

    Venkat Guest

    If I ever have to adjust once price hits original fly's BE points, I prefer BWB. Adding another regular fly will create huge upside gamma issues. Depending on your greeks from original fly, you can adjust the wing widths of BWB (50/40 or 50/30). Hope this helps.
    Last edited by a moderator: Jul 17, 2015
    RayM likes this.
  5. Venkat

    Venkat Guest

    BTW, converting the original fly into a BWB is also a good strategy but won't extend the tent as much as adding an additional BWB does.
  6. Hugh

    Hugh Well-Known Member

    how do you add an additional BWB to an existing one?
    Interesting idea to reduce the "bad side" width

    By upside gamma issues do you mean the gamma of the bad side of the fly will cause hedging problems?
  7. Venkat

    Venkat Guest

    1) Adding additional butterflys to the upside is the core concept of ROCK (M15) trade from John Locke. I typically center the secondary BWB closer to the money.
    2) Reducing the wing width of the "bad side" thereby converting it into a BWB is a great defensive strategy. Some people reduce the number of contracts while keeping the wing width the same (Weirdor or Jeep or Tony Sizemore's ratio condor or Dave Stewart's Caspian Sea Monster) and some others reduce the wing width keeping the number of contracts the same (like John Locke). I guess the the philosophy is similar.
    3)By upside gamma issue I meant that the curvature of the T+0 will be steep on the upside if you add a secondary regular fly (ATM butterfly is delta negative by nature).
    Mohit, Hugh and RayM like this.
  8. Hugh

    Hugh Well-Known Member

    Thanks Venkat. I've been adding a second fly on the other side of spot. I then sometimes reduce the size of the two inner credit spreads, but your idea of immediately adding a second BWB is a good one. So a good adjustment that preserves theta and keeps the T0 curve flat could be: Fly->BWB->2xBWB.

    I'm not sure about placing the second BWB closer to the money instead of further out which increases the prob of success, but I'll play with my model and compare results.
  9. Hugh

    Hugh Well-Known Member

    BWB closer to the money makes the trade more delta -ve. Is this what you do?

    Attached Files:

    • BWB.png
      File size:
      51.3 KB
  10. Venkat

    Venkat Guest

    Hugh: From the diagram, the secondary butterfly appeared to be a regular butterfly and in equal number of contracts as the original butterfly. You can try reducing the debit wing (or upper wing) width and/or reduce the number of contracts. By varying the number of contracts, wing widths and where you position the center strike you can achieve the deltas you want. For example, if the primary butterfly is 10 contracts of 50/50 wings, the secondary butterfly could be 5 contracts of 50/40 (just as an example). You can increase the number of upper butterflys as the market moves up.
    Hugh likes this.
  11. Venkat

    Venkat Guest

    Adding butterfly much above the spot is a pro-active adjustment which is definitely cheaper to begin with and may/maynot work out in the end. In general, you cannot go wrong as adding butterflys as an upside adjustments is a great concept (as volatility comes down with rising market)...
  12. Hugh

    Hugh Well-Known Member

    Different gaps, strikes, no of contracts....a million ways to skin the cat or keep Delta low!
    I guess how to adjust the original fly depends on market conditions. BWB is good for a trending market, dbl fly is good for a drifting market. My preference is leaning towards the Fly->BWB->2xBWB adjustment.
  13. Venrcew

    Venrcew Well-Known Member

    Hugh how different is your second bwb in terms of width and contracts?
  14. status1

    status1 Well-Known Member

    Your attachment caught my eye
    I was wondering where does the Rubix payoff graph comes from ?
    I have not seen that before

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