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Buying both OTM call and put options to protect from unexpected wipeout
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Created: by ClearTrades Attachments:0

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Buying both OTM call and put options to protect from unexpected wipeout

  #11 (permalink)
London, UK
 
 
Posts: 68 since Jan 2018
Thanks: 151 given, 59 received

@Harvard16, interesting butterfly trade you posted above. What software do you use to model this trade before executing it - I would like to do options butterflies on commodities like the one you mentioned, but want to explore the risk/reward graphs first. It would be good to see the theta, vega impact on this as time passes and the underlying price bobs up and down.

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  #12 (permalink)
Singapore
 
 
Posts: 43 since Sep 2012
Thanks: 55 given, 69 received


zxcv64 View Post
@Harvard16, interesting butterfly trade you posted above. What software do you use to model this trade before executing it - I would like to do options butterflies on commodities like the one you mentioned, but want to explore the risk/reward graphs first. It would be good to see the theta, vega impact on this as time passes and the underlying price bobs up and down.

To be honest I seldom model a trade like this, if I can get the strikes wide enough and the trade makes sense, I just put it on, if I need to model something, I either do it in my optionsxpress or ToS accounts using the software available.

My main objective is to get as strong a hand as possible, markets are experts at shaking weak hands out day-in-day-out, it's maddening to be stopped out and then see the market go ones ways, so the stronger your hand the better off one is to stay in. The structure of trades like this helps too as often one can't exit even when the market has moved in ones favor as the profit on the long side is somewhat offset by the loss on the short side and that is where patience is needed to hopefully see theta do it's work on the short options over time to slowly realise the gain, if it's there.

I also try to get the trades on in elevated vol/vega situations at the start, hogs is a good example at the moment, last week I could get a similar trade structure on both ways in July Hogs, which allows for a profit window from 130 down to 84 prices with acceptable limited risk, because of all the insane vol. I know this market is going to continue to be wild and in futures for sure would be shaken out, but with this trade have a strong hand to ride things out and see where it all ends up.

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