Davidkot81 11 Report post Posted February 25, 2016 (edited) Proposal-- what do you all think of selling a broken wing fly MAR SELL -3 16 Calls BUY +6 18 Calls SELL -3 22 Calls Net debit $120 Max profit $480 Max loss $660 (if exactly at 18 at expiration, so loss likely 1/2 or less of this) You make ~$5 a day on theta, and the risk is centered between 16-20.4, (very small loss below 16). Based on vix and volatility in Jan and Feb seems like a good bet. What do you think? Edited February 25, 2016 by Davidkot81 1 Davidkot81 reacted to this Share this post Link to post Share on other sites
Kim 7,513 Report post Posted February 25, 2016 Interesting trade. The problem is what happens if the market starts to calm and volatility starts to drift lower? 18-19 is your weak spot, and it's entirely possible that VIX will start drifting there. Share this post Link to post Share on other sites
Davidkot81 11 Report post Posted March 5, 2016 With an implied vol about 80% And with an April butterfly, the prob of touching over 20.5 is about 50% while touching below 16 is about 80%. There is a 21% chance of finishing between 16 and 20. Seems unlikely that it stays in that range the entire time until expiration. For 1 contract Loss for below 16 would be -$25 (price paid) max loss between 16-20 -$205, more likely loss about -100 and the max gain (over 22) would be $200 while gain at about 20.5 is $100. Initial investment is about $25. In highly volatile environments such as now it seems more likely to have a wider range than what is predicted by the std deviation. Just wondering if it's worth backtesting 1 Davidkot81 reacted to this Share this post Link to post Share on other sites
