Re: [Option_BWBs_and_Collars] Re: BWB and the unbalanced fly
BW
Sent from my iPod
Comparison of the two trades?
That is a totally subjective exercise. Each trader would come up with a different selection and different reasons depending on many factors including market opinion (your expectation of how the market will move and how quickly), your trade plan (profit exit, loss exit, adjustment plan, etc.), etc., etc.
But, assuming you can define all of those parameters so that everyone would be basing their selection on the same criteria, I would want to compare trades on an equal risk basis. The two trades you have proposed are not equal risk. The Nov 108-112-114 put BWB has a max risk of $200 (less cost of trade) whereas the Nov 108-111-114 (2x3x1) BFly has a max risk of $300 (again less cost of the trade).
You could compare different quantities of each such that you were comparing trades that have the same max risk (e.g. 3 of the BWB compared to 2 of the 2x3x1 bfly), but to me a more meaning full comparison might be one where the butterflies are of similar structure (i.e. same short strike, the same size debit spread, and the same amount of risk). For example, compare a 108-112-114 BWB with a 110-112-114 (2x3x1) bfly. Both of these butterflies have a max risk of $200 (less cost of trade). Both have the same debit part (112-114). The difference is that one has one 108-112 credit spread and the other has two 110-112 credit spreads.
JohnOn Thu, Sep 23, 2010 at 4:11 AM, bben1006 <bben...@yahoo.com> wrote:TOS used to be much quicker in responding to fixing errors…. Well, I guess we will take the `good' along with the `bad' –since I think they still shine in many other respects.
As for the original post, I presented two types of deformed Bflies—one obtained as a `skipped-strike' creature (the so-called BWB) the other was obtained by adding extra vertical spreads to the Bfly resulting with the so-called `unbalanced' BFly. The two versions result with credit, have similar break-even point, etc.. And my question was simple: which of the two, one would prefer to use? The margin issue is one of the points of concerns- but surely not all. So, let us return to the question – (even when compared to your suggested IC)—which one of the two types of Bflies you would prefer to use and why? --assuming momentarily that TOS has removed the pains of the extra margin they needlessly require.
TIA for sharing,
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bben1006
Well.. with the new release this morning of TOS (1719) they also 'fixed' this IC "workaround" for you.
--- In Option_BWBs...@yahoogroups.com, BW <thefitstop@...> wrote:
>
> John,
> Thanks for the info on the "workaround" to still be able to set up a BWB type trade using an IC structure. I have avoided BWBs the past few months because the margin was 3 times what it used to be to set them up. This workaround is great. Thanks for finding it and for sharing it with this forum.
>
> Sent from my iPod
>
> On Sep 23, 2010, at 11:57 AM, John <jmc031229@...> wrote:
>
> > Comparison of the two trades?
> >
> > That is a totally subjective exercise. Each trader would come up with a different selection and different reasons depending on many factors including market opinion (your expectation of how the market will move and how quickly), your trade plan (profit exit, loss exit, adjustment plan, etc.), etc., etc.
> >
> > But, assuming you can define all of those parameters so that everyone would be basing their selection on the same criteria, I would want to compare trades on an equal risk basis. The two trades you have proposed are not equal risk. The Nov 108-112-114 put BWB has a max risk of $200 (less cost of trade) whereas the Nov 108-111-114 (2x3x1) BFly has a max risk of $300 (again less cost of the trade).
> >
> > You could compare different quantities of each such that you were comparing trades that have the same max risk (e.g. 3 of the BWB compared to 2 of the 2x3x1 bfly), but to me a more meaning full comparison might be one where the butterflies are of similar structure (i.e. same short strike, the same size debit spread, and the same amount of risk). For example, compare a 108-112-114 BWB with a 110-112-114 (2x3x1) bfly. Both of these butterflies have a max risk of $200 (less cost of trade). Both have the same debit part (112-114). The difference is that one has one 108-112 credit spread and the other has two 110-112 credit spreads.
> >
> > John
> >
> >
> >
> >
> >
> >
> >
> > On Thu, Sep 23, 2010 at 4:11 AM, bben1006 <bben1006@...> wrote:
> >
> > TOS used to be much quicker in responding to fixing errors…. Well, I guess we will take the `good' along with the `bad' â€"since I think they still shine in many other respects.
> >
> > As for the original post, I presented two types of deformed Bfliesâ€"one obtained as a `skipped-strike' creature (the so-called BWB) the other was obtained by adding extra vertical spreads to the Bfly resulting with the so-called `unbalanced' BFly. The two versions result with credit, have similar break-even point, etc.. And my question was simple: which of the two, one would prefer to use? The margin issue is one of the points of concerns- but surely not all. So, let us return to the question â€" (even when compared to your suggested IC)â€"which one of the two types of Bflies you would prefer to use and why? --assuming momentarily that TOS has removed the pains of the extra margin they needlessly require.
> >
> > TIA for sharing,
> >
> >
> >
> > -
> >
> >
>
