Iron condor vs Butterfly

[el_isma 0]

Hello, I'd like to know when would you choose an IC vs a Butterfly spread. Both trades are very similar to my eyes. What are the differences?

Thanks!

[Kim 7,943]

There are few posts that explain the differences:

 

http://www.sheridanmentoring.com/iron-condor-iron-butterfly-better/

http://sjoptions.com/iron-condor-v-butterfly-spread/

http://thismatter.com/money/options/butterfly-condor-option-spreads.htm

 

Both trades are vega negative theta positive gamma negative.

 

The main difference is that IC is high probability trade with terrible risk/reward (at least if you use 10-15 deltas like most traders do) while fly is a low probability trade with excellent risk/reward.

 

For example: if you use IC with short deltas of 10, you usually get around $2 credit on $10 spread, so you risk $8 to make $2. But your probability to make the $2 is around 80%. With fly, the risk/reward is usually much more favorable, but you need to stay close to the sold strike to realize the reward. For example, the setup we do with our SPX fly, we risk around $7-8 to make $42-43. But in order to make the reward, the underlying needs to stay near the strike till expiration, which is a very low probability. This is why we usually book profits around 25-30%.

 

The bottom line is that no trade is better than the other, they both have pros and cons.

[el_isma 0]

Thanks, it's much clearer now.

[urfiend 8]

On 11/15/2016 at 12:34 AM, Kim said:

There are few posts that explain the differences:

 

http://www.sheridanmentoring.com/iron-condor-iron-butterfly-better/

http://sjoptions.com/iron-condor-v-butterfly-spread/

http://thismatter.com/money/options/butterfly-condor-option-spreads.htm

 

Both trades are vega negative theta positive gamma negative.

 

The main difference is that IC is high probability trade with terrible risk/reward (at least if you use 10-15 deltas like most traders do) while fly is a low probability trade with excellent risk/reward.

 

For example: if you use IC with short deltas of 10, you usually get around $2 credit on $10 spread, so you risk $8 to make $2. But your probability to make the $2 is around 80%. With fly, the risk/reward is usually much more favorable, but you need to stay close to the sold strike to realize the reward. For example, the setup we do with our SPX fly, we risk around $7-8 to make $42-43. But in order to make the reward, the underlying needs to stay near the strike till expiration, which is a very low probability. This is why we usually book profits around 25-30%.

 

The bottom line is that no trade is better than the other, they both have pros and cons.

Hi Kim

I saw you using sjoptions as reference for some topics and suscribing their youtube-channel.

Do you have any more detailed information on what they are actually doing in their trading with their near 100% winning rates?

Thank you for your feedback

 

[Kim 7,943]

26 minutes ago, urfiend said:

Hi Kim

I saw you using sjoptions as reference for some topics and suscribing their youtube-channel.

Do you have any more detailed information on what they are actually doing in their trading with their near 100% winning rates?

Thank you for your feedback

 

I'm not really familiar with what they do. Just took a look at their performance. While the winning ratio is high, most winners are very small, in 1-2% range. Also in some years the presented results are backtesting and not live results.

My guess is they are trading very low delta naked puts or credit spreads. 

[gowthamn 10]

42 minutes ago, Kim said:

I'm not really familiar with what they do. Just took a look at their performance. While the winning ratio is high, most winners are very small, in 1-2% range. Also in some years the presented results are backtesting and not live results.

My guess is they are trading very low delta naked puts or credit spreads. 

I am a member of sjoptions. Their strategy is a lot more complicated than just naked or spreads. Some trades have 5 legs!

Their trades have extremely low risk. But for a REG-T account their returns are also low compared to SO. But for a PM account their returns are very good. It's my personal opinion that their strategy is more suitable for a PM account only.

I cannot say much as I have signed a Non Disclosure Agreement with them in order to become a member :).

[Kim 7,943]

3 minutes ago, gowthamn said:

I am a member of sjoptions. Their strategy is a lot more complicated than just naked or spreads. Some trades have 5 legs!

Their trades have extremely low risk. But for a REG-T account their returns are also low compared to SO. But for a PM account their returns are very good. It's my personal opinion that their strategy is more suitable for a PM account only.

I cannot say much as I have signed a Non Disclosure Agreement with them in order to become a member :).

Well, getting higher returns in a PM account is only useful if you use more margin. Which obviously increases your risk significantly as you need to increase the number of contracts or increase the number of trades.

[Kim 7,943]

A Non Disclosure Agreement implies that there is some kind of secret formula that only members can enjoy and that cannot be shared. Well, let me tell you a secret (this one is free, I won't charge you $2,400😞 there is no secret formulas, secret strategies or secret sauces. All strategies are well known by most options trading professionals, and have been traded by thousands of traders.

As to "low risk" trades - many strategies have been presented as low risk (including Karen Supertrader, James Cordier, LJM Preservation And Growth fund and others). We all know that "low risk" can be deceptive.

In their backtesting results, they claim 1620% performance in 13 years. Does anyone really believe those kind of returns can be achieved with low risk?
 
Personally, when someone presents those kind of returns and describes them as low risk strategies, and requests a $2,400 payment upfront upfront (with no free trial and no refunds), without a slight hint what the strategies are and how the returns are calculated, I would be very skeptical. 

[new@options 1]

Amen Kim.

[gowthamn 10]

1 hour ago, Kim said:

A Non Disclosure Agreement implies that there is some kind of secret formula that only members can enjoy and that cannot be shared. Well, let me tell you a secret (this one is free, I won't charge you $2,400😞 there is no secret formulas, secret strategies or secret sauces. All strategies are well known by most options trading professionals, and have been traded by thousands of traders.

As to "low risk" trades - many strategies have been presented as low risk (including Karen Supertrader, James Cordier, LJM Preservation And Growth fund and others). We all know that "low risk" can be deceptive.

In their backtesting results, they claim 1620% performance in 13 years. Does anyone really believe those kind of returns can be achieved with low risk?
 
Personally, when someone presents those kind of returns and describes them as low risk strategies, and requests a $2,400 payment upfront upfront (with no free trial and no refunds), without a slight hint what the strategies are and how the returns are calculated, I would be very skeptical. 

$2400 was long ago. Now its $7500 for all his latest material !

Their result is based on paper trading at mid price. They are not real fills. He discloses that.

 

They have low risk, but at the same time have low returns compared to SO.

Edited April 2, 2019 by gowthamn

[Kim 7,943]

9 minutes ago, gowthamn said:

$2400 was long ago. Now its $7500 for all his latest material !

Their result is based on paper trading at mid price. They are not real fills. He discloses that.

 

They have low risk, but at the same time have low returns compared to SO.

Of course he does. He needs to protect himself against lawsuits. But how many people really read those small print disclosures?

 

I wouldn't call 1620% low returns.

 

$7500? Wow! You could subscribe to all 4 our services for 3 years lol.. makes me think we should double our prices..

[Alan 107]

1620% over 13 years is only about 24% per year if the account is compounded.. 24% is very nice but much less than the average at SO. If the 1620% was not a compounded number, then, yes, a very high return - 124% per year. 

Edited April 2, 2019 by Alan

[ex3y7s 149]

Paper trades at mid price in my experience paints a very skewed result. I know any of us would kill to be able to fill at the midpoint even half the time, and over 13 years those pennies (or, more likely nickels and even dimes) absolutely will add up to inflated returns, particularly if they are compounding the account.

 

It's true that SO alerts are often 10-15 minutes delayed so you can't necessarily get the actual fill in the alert at that moment in time, but they are based on real fills that you can see in the order books, which at least to me makes a world of difference and proves that the strategies and alerts work in real market conditions. Over time and with patience, an SO subscriber's fills will converge to the actual service--sometimes the delay working against and sometimes in favor of the entry--whereas with a service based on paper trading at mid price you will virtually always be drifting farther and farther away.

Edited April 2, 2019 by ex3y7s

[DavidR 1]

24% annual return with very low risk over 13 years? I would take it, but I doubt it's possible.