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Managing Tony Sizemore's BW Fly ??

Discussion in 'Options' started by Rod M, Jun 3, 2015.

  1. Rod M

    Rod M Well-Known Member

    Those of you trading Tony Sizemore's version of the BW Fly....which he calls a credit spread protected by "soldiers" ..... .here is a question: How far do you let your Delta's go negative before adjusting. I know Tony's 10 percent Delta/Theta Rule, but I also know that you want to keep negative deltas for a pullback.

    I have been following the 10 percent rule in the early part of the trade...knowing that this will continue to raise the right wing of the fly. My question is....do some of you use a different "rule of thumb" in adjusting your deltas in this trade///ie do you let your deltas run out more than 10 percent, etc. Does anyone ever add a call debit spread to raise the right wing...somewhat like an M3 ?

    Just trying to decide if I am over adjusting or not. Thanks...
  2. David Stewart

    David Stewart Well-Known Member

    You can check out my Take Five trade if you like. It is quite similar to Tony's trade. I have presented several times if you search the library.
  3. Rod M

    Rod M Well-Known Member

    Thanks David. You seem to trade with a large amount of positive deltas. Although your trade is short term, are you ever concerned that a large pullback could hurt you significantly ?
  4. Martell

    Martell Member

    David's Delta's are +positive because he is "net" selling puts and pos delta's is exactly what you want in a market that seems to constantly go up (currently) anyway right:D
    but keep in mind Dave's Take five manufactures neg -deltas automatically and its a short term trade to boot so the "large amounts of + delta's" is temporary just as the -vega is ...all the calculus changes once adj's are made:eek:but the base model of the Take Five +Delta's with naturally over a very short period of time (days) dramatically be reduced and in fact go negative delta...which is also fine remember at some point ...any net sold put(s) does....over time

    delta's in this particular kind of trade isnt even the main focus because the trade is short term even if you had -deltas the gamma on a "significant move to the downside will manufacture pos delta's that with hurt the trade ....so yeah see how dave adj's his take five when the "speed" of a down move forces an adjustment. with a "measured" down move holding +delta's you'd prob do nothing in that case:rolleyes:
    its a great trade test Tony's and Dave's trade in your Paper money account(thinkorswim) see how the greeks shake out.
    I trade the other spectrum 75-110 DTE with ratio spreads BWB's are more of a margin issue for me not a dynamic form of risk management...so I dont buy the 3rd leg or garbage option anymore ...dont need to.

    woo...didnt know I was gonna write all that...n still left out ALOTo_O
    -Mr M.
  5. David Stewart

    David Stewart Well-Known Member

    Thanks Martell, I probably don't need to respond now :D I was going to add that I do sometimes add a bunch of negative delta if I feel I need it but also I look at my whole "book" to see where a short term move will put me for example right now I have a trade with a large negative delta overall here:

    sort of balanced off with this one that has a moderate positive delta shown here:

    The first trade has 44 days remaining where as the second one has 23 days remaining. So at least on the very short term basis (like when the market opens today as futures are indicating a moderate down move (at 4AM EST) they will kind of balance out. Since ultimately I don't know where the market is going all I can do is prepare for as many scenarios as I can and especially on the shorter term trade be ready to adjust if needed. Ultimately I feel that I have a good probability that the 1200 puts (in the case of the shorter term trade for example will decay and if they stay 30, 40, 50 or 60 points or so OTM the gamma will bleed away also as they are about an 11 gamma compared to my long puts that have at least 5x as much gamma and will hold that gamma into expiration being ATM or just ITM options. So I'm a little more concerned with gamma and vega and vanna and volga if you will then I am overall position delta. Remember what N N Taleb said in his book: delta is not a particularly good risk metric on a complex position with a lot of different options in it.
    Lastly, I'm not sure if Martell meant to say that "any net short put will eventually go negative delta over time" as we would need a long option combined with it for that to be true even if it was just done on a ratio like 1 long option to 5 short options then his statement would be true but just a single short put only would never go positive delta although if the position went in your favor the delta would approach asymptotically a positive delta but never quite get there. You could think of it as vanna, which measures the delta sensitivity of an option to a change in volatility so as the short option goes way OTM and time runs out volatility dissipates as well since there is no volatility left at expiration so in effect the negative delta of the short put would approach zero. Another factor we can use in selling options further out in time like Martell does is take advantage of "delta drift" but we can save that for another discussion but to see that just look at a just OTM call for instance with 3 months left, then check the same call with 2 months left and you will see a slight "drift" lower on the delta. (assuming no meaningful changes in spot price or volatility of course) That may be what Martell meant as well in that if you are short those deltas over time with the spot price and volatility about the same you will be short "less" delta than you were when time goes by. (and of course time always moves forward although sometimes it can appear to stop or even go backward but it will always eventually go forward at least on this planet) :cool: All right back to our regularly scheduled broadcast: The French Open? (no, still too early in the morning here in the woods of western Massachusetts) ;)
    Oh and lastly, Martell you should share some of your trades as they sound like interesting trades utilizing further dated options I am also doing more trades further out in time for instance on my double and triple gammon trades I have on one of them on in the SEP expiration in the RUT and one in JUL and two in AUG. They are a lot less work than the Take Five which I generally have no choice but to adjust several times and even intra-day I frequently have to adjust. This fact alone means that I can end up having to trade it right into expiration which has been very good for me as a learning tool and I usually can get my profit but it is also stressful or to put it another way a "pain in the ass#ets" :mad:
  6. Chuck

    Chuck Active Member

    Hey Rod,

    This would be a good discussion for a trading group meeting like trading group #1, so we could share screens and speak more specifically. :)

    My trade is similar to Tony’s, but I peel short verticals off one at a time more like Locke’s V condor to control my gamma and risk. I also like wider short verticals than Tony. It provides more adjustments possibilities, saves of commission, and has less slippage. The trade-off is a lower return on risk. When I am forced to roll out the short verticals I will have 70% less to roll because of these differences. I hope that helps some.
  7. David Stewart

    David Stewart Well-Known Member

    Daisy is in agreement and as usual has her eye on the VIX futures this morning.:D
  8. Martell

    Martell Member

    Hey Dave yes ...that's what I ment thats why I said "net" short a put or puts i.e. a +1p x -2p (one x two) ratio would be a "net" short one sold put because your broker doesn't see a 1 x2/Ratio all they see is that your naked 1 put or "net" short 1 put (n will margin you that way):(
    anyway like i said before i signed off ...there was alot i left out because there are so many things to consider when playing this type of chess like the greeks...2nd order greeks, vol, price movement, SPEED ,3rd order greeks, slippage ...blah blah blah:confused:
    its a wonder how anyone can make a buck:D......but you can:rolleyes:

    Mr. Martello_O

    Ps. Maybe i will start to participate more on the calls ...but i listen all the time n catch the replays too i just find myself listening to more replays than catching the live discussions
  9. David Stewart

    David Stewart Well-Known Member

    You got it buddy, see you in the forums, just don't forget to chime in once in a while :cool:
  10. David Stewart

    David Stewart Well-Known Member

    I have a history of dyslexia (before it was popular) and I see above I reversed the signs. I meant that the short put combined with a smaller quantity of long puts would go from positive delta to negative delta over time depending on which option(s) in the position are dominating. And of course that just the short put itself is positive delta and as it gets close to expiration and has very little chance of going in the money than the positive delta would get very small. Sorry about that it was early in the morning and my brain flipped signs :(

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