Sometimes you do the right thing for the wrong reasons. I have back-tested the weekly butterfly idea using straight butterflies in lieu of Iron butterflies simply because it is easy to calculate values on my limited TOS thinkback application. I knew the butterflies are not easy to get in and out of, I had even mentioned this to my partner (wife) several weeks ago. Then, because I backtested using butterflies, I started trading live using butterflies, bad decision. Now I am having a heck of a time getting out of those butterflies, I can’t decompose them, if you take one spread at a time, you expose your portfolio to big delta risk, same if you take one contract at a time, the only way to avoid it is by combining a call and put butterfly and exiting them in parts...
So, here I am, talking to my wife about this.. and, of course, she asks the so fatal question: “Why again did you use butterflies? Didn’t you tell me they were hard to get out?”... Touche, my answer? Because sometimes people do stupid things.. Couldn’t figure of a better answer.. ahahah
Well folks, enjoy the weekend, I sure am going to enjoy mine.. I got clearance to spend 4 weekend hours backtesting, so I know I won’t sleep well (too excited), will wake up around 5 AM and start backtesting this weekly iron butterfly strategy, checking the hedge vs. Hedge+recover approach... Yeah, I’m a geek, but hey, whatever rocks your boat :)
3 comments:
Hi Gustavo,
Thanks for the chuckles :-D What did I learn from just this one blog post? 1) Bounce things off your wife and business partner more often, and 2) man you really love trading .. you can't wait to get up at 5 AM on your Saturday to back test? :-) I admire you passion and your dedication brother!!! :-) Glad you got the 4 hour clearance! :-)
Have a great weekend my friend. I will jump all over you if I see you put on a straight butterfly. You can count on that :-)
What about broken wing butterflies? I know some use them as a hedge (to the downside) play with the near zero cost spread.
Have a great weekend!
Best,
Chad
Gustavo, I know the commissions are a lot more but taking into account the liquidity, and b/a spread, would it be more beneficial to trade
options on the qqqq than the NDQ? Basically what I am asking is wouldnt the better fills more than offset the much larger commissions?
Hi there, I think the MNX might be a better option if you're looking for somehting with a bit more liquidity. I never traded the QQQQ, is it also cash-settled?
One benefit of MNX, NDX and other cash-settled indexes is that the income is treated differently when you do your taxes, so there is an added benefit to use such indexes.
I honestly do not know. I've traded the MNX for a while (still do), but want to migrate to NDX because of the commissions issue, sometimes my cost to trade on the MNX is half of the income it generated.
Chad: I don't know about broken wing butterflies, I've used them before as adjustments but as iron butterflies, not straight butterflies.
Take care!
Gustavo
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