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Flock of Flies

Discussion in 'Options' started by Trader G, Sep 6, 2014.

  1. Trader G

    Trader G Well-Known Member

    Tom and others, have you ever considered running the bearish flies as a total package? With the weekly series opening up, you literally could stagger not only the quantity but also the fly expiration every 2-3 days. By looking at them all together, you have some flexibility in adjustments. Example market heading down and vol coming up you can buy back a short put out of the middle of the fly in one of the back months. Also, you would be entering on different days so it isn't an all or none with the fly entry (you could even position some of the flies closer to the money than typical based on what the existing position looks like). I see a lot of different scenarios, essentially you would want the entire fly structure with the body of the fly below the market and a flat T+0 on the upside. You would probably lose the original fly structure with the adjustments, so you would probably want to run it in a PM acct. Just curious what pitfalls you guys see.
     
  2. tom

    tom Administrator Staff Member

    Interesting idea. Dan Harvey is doing these every week. I hadn't considered every few days. The extreme would be one or two lots per day :) That might be pretty interesting to back test.
     
  3. Trader G

    Trader G Well-Known Member

    The key is on the adjustment side. You aren't looking at the trades independently so you may be adjusting parts of different flies depending on the greeks you want.
     
  4. tom

    tom Administrator Staff Member

    It's not only the greeks. You also need to keep a decent looking risk chart going and that's hard to back test, at least automated back testing.
     
  5. marat

    marat Well-Known Member

    What market were you thinking about? Approximately what would be the strike structure?
     
  6. meyer99

    meyer99 Well-Known Member

    G
    Can you run a sim trade so the less experienced traders can see the details?
    Thank you.

    Sent from my Nexus 7 using Tapatalk
     
  7. Trader G

    Trader G Well-Known Member

    I am not a big back testing fan so I let my option modeling software expire. However, I am looking at Optionvue and I think I can get a 14 day trial. Give me a few days to play with it and I will see what I can do. Tom is right above though, it will be hard to backtest.
     
  8. Trader G

    Trader G Well-Known Member

    I trade RUT and SPX with the flies. Very similar to Jim's kevlar fly, I believe the presentation is posted on this site somewhere. Using RUT as an example at 1170 I would drop down to around 1140 for the center strike and 50 pt wings (symmetrical although I have used bwb). I would look at a itm call to balance out the negative deltas which would give the trade a flat T+0 and low gamma. Then every couple of days you would add new flies either at the same strikes or different strikes and different expirations. Unlike individual trades, adjustments would be made based on what greek profile you are looking for. The risk graph would have the market on the right side of the butterfly and the T+0 flat as the market goes up.
     
  9. Trader G

    Trader G Well-Known Member

    Here is an example with a couple of different expiration months I am trading
    upload_2014-9-6_9-4-48.png
     
  10. meyer99

    meyer99 Well-Known Member

    G,
    Thank you. That is what I meant, to see a current trade and follow it over time. I did not mean for you to get optionvue and backtest anything.
     
  11. marat

    marat Well-Known Member

    This really reminds of M3 setup that Locke talks about. Very nice looking graph. Are you adjustments similar (on an individual fly) to Jim? As far flocks, my only concern would be strike proliferation and stepping over on strikes if you scale up in the same expiration. Otherwise it is an interesting idea. Let me know if you need help backtesting those.
     
  12. Trader G

    Trader G Well-Known Member

    I don't have set rules on my adjustments, just depends on the market. Rolling shorts via verticals is the most common adjustment, I also like Jim's adjustment of pulling the top leg of the fly (put debit vertical or the call credit vertical in an iron) and rolling it up via broken wing iron condor. If we start going down quickly, buying back a short put is the quickest way to stop the bleeding. Running this across expiration cycles gives me options of diagonals/timespreads etc. I definitely think this trade should be done in a PM account so that stepping on the strikes doesn't cause margin issues. Thanks for the invite on the back testing, I am moving over to Optionvue hopefully next week so I might start testing. The key with this is to pick a start date and literally move day to day and add/adjust as you go. In the past I did a lot of real trading/backtesting on Jim's bwb and it was one of the most robust trades I have come across including 2008. I called it the "Riggifly" because it was his ideas that got me really going on the trade.
     

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