Round Table with Charles Cottle - January 17, 2018

Discussion in 'Round Table Presentations' started by status1, Jan 21, 2018.

  1. status1

    status1 Well-Known Member

    I watched this video and while it is interesting I am not sure how useful it is or understand it's purpose
    Does anyone use this to dissect the butterfly ?
    I understand that you can transform one shape to another but beyond that are there any real applications for it ?
    I mean does dissecting the butterfly give you an edge or make your trade any more profitable ?
    Are 2 separate flies better than a single large one ?
    What is the point of having 4 or 5 small flies instead of one large one ?
    Is it just to show that they are synthetic or is there more to it than that ?
     
    PK likes this.
  2. Kevin Lee

    Kevin Lee Well-Known Member

    I did not attend the talk but I read Cottle's book many years ago. I recall a chapter on dissecting butterflies. I didn't really understand how to use it either other than it's an interesting concept. Neither was it explained in the book.
     
    PK likes this.
  3. ACS

    ACS Well-Known Member

    Glad to see I'm not the only one who had the exact same thoughts.
     
    PK likes this.
  4. Andrew C

    Andrew C Well-Known Member

    I will go out on a limb here....I think he is talking about the fact that there are imbedded flies in a larger butterfly. These can be viewed as inventory. Each of these flies will become more or less valuable as the trade matures to the point that it may make sense to start stripping the more valuable flies off (i.e., lock in profit). Alternatively, one could take off flies that come too risky (i.e., to control delta or vol exposure). Does this sound reasonable?
     
  5. Capt Hobbes

    Capt Hobbes Well-Known Member

    He says on page 1 of his book: "We will explore the concept of position dissection; that is, positions that are broken down into useful components or spreads, so that we may understand how these items impact the overall position in terms of quantifiable risk. This will aid decision-making in building strategies and making position adjustments to the original position."
     
  6. PK

    PK Well-Known Member

    I am scaling into positions by adding butterflies that in some way "chase" the market, ending up with a kind of butterfly collection. When it comes to make adjustments or scaling out, I found it helpful to keep track of individual butterflies, looking at which one is the best candidate for either operation, though looking at the overall result on the aggregated position. Said this, I understand that it may be helpful to break an inventory of strikes down to individual butterflies. But I
    still do not understand what's the point of breaking down each position into the sum of, at least in my case, inmanagably huge number of individual minimal size butterflies.
     
  7. Andrew C

    Andrew C Well-Known Member

     
  8. status1

    status1 Well-Known Member

    It sounds reasonable but he doesn't seem to do that
    At least he did not show (or I could not tell) which BF is more risky or more valuable
    Also I am not sure how well that works in a grind up market we have recently
    If he just takes out flies and the whole trade is OTM I don't see how that will make any profit except maybe minimizing the losses by removing some of the flies also seems like it's very commission intensive if he is taking them out one by one

    Sure if you started with one fly and added another one or a condor it makes sense to track the trades separately and I do that in TOS by turning them on and off but to go any deeper than that I am not sure if that adds any more value to the trade
     

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