Ds Butterfly vs Condor

7/28/2019 Ds Butterfly vs Condor

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Sheridan Options Mentoring, Inc.www.SheridanMentoring.com

Income Generation Series:Butterflies vs Calendars

Jul 26, 2011

Dan Sheridan


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Page 2@ Copyright 2010. All r ights reserved.

Options involve risk and are not suitable for all investors. Prior to buying or selling an

option, a person must receive a copy of Characteristics and Risks of Standardized

Options. Copies are available from your broker, by calling 1-888-OPTIONS, or from The

Options Clearing Corporation at www.theocc.com. The information in this presentation

is provided solely for general education and information purposes. Any strategies

discussed, including examples using actual securities and price data, are strictly for

illustrative and educational purposes. In order to simplify the computations,

commissions and other transaction costs have not been included in the examples used in

this presentation. Such costs will impact the outcome of the stock and options

transactions and should be considered. Multiple leg strategies involve multiple

commission charges. Investors should consult their tax advisor about any potential tax

consequences. No statement within the presentation should be construed as a

recommendation to buy or sell a security or to provide investment advice. Supporting

documentation for any claims, statistics, or other technical data is available from

Sheridan Options Mentoring at www.sheridanoptionsmentoring.com. Chicago Board

Options Exchange, Incorporated (CBOE) is not affiliated with Sheridan Options

Mentoring or OptionNet. This presentation should not be construed as an endorsement or

an indication by CBOE of the value of any non-CBOE product or service described in

this presentation.

Disclaimer


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Outline

Butterfly versus Iron Condor

Wing Span of Butterflies

Delta comparison at the beginning of the trade

Which strike with Calendars?

Scaling or full capital

Managing these trades during volatile Months?


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Butterfly versus Condor

Date: 7/22/2011 IBM Price: $184.59

Options Price Delta Trade

200 Calls $0.34 7.6 +10

195 Calls $0.89 16.8 -10

175 Puts $1.83 -22.3 -10

170 Puts $1.07 -13.9 +10

SEP(56)

Delta -8.5

Gamma -17.2

Theta 17.6

Vega -134.3

Credit 1,310

Margin 3,690


195 Calls $0.89 16.8 +10

185 Calls $4.08 49.9 -10

185 Puts $5.18 -49.6 -10

175 Puts $1.83 -22.3 +10

SEP(56)

Delta -56.4

Gamma -22.9

Theta 23.2

Vega -179.2

Credit 6,535

Margin 3,505

Iron Condor Iron Butterfly


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Butterfly versus Condor

Date: 7/22/2011 IBM Price: $184.59


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25 days in Future (August 16)

Date: 7/22/2011 IBM Price: $184.59

Butterfly

Calendar


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35 days in Future (Aug 26)

Date: 7/22/2011 IBM Price: $184.59

Butterfly

Calendar


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Calendars

Criteria

Low Implied Volatility

Easier to manage ( 2 legs only)

Easier to execute

How to handle implied volatility increases?


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Butterflies

Criteria

Best implied volatility environment

Harder to manage ( 3 legs)

Harder to execute and more commissions

Handling implied volatility increases?


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Butterfly Wing Span IBM

Date: 7/22/2011 IBM Price: $184.56


195 Calls $0.88 16.7 +10

185 Calls $4.05 49.5 -10

185 Puts $5.20 -49.9 -10

175 Puts $1.84 -22.4 +10

SEP(56)

Delta -56.5

Gamma -22.9

Theta 23.3

Vega -179.6

Credit 6,530

Margin 3,470


190 Calls $2.05 31.5 +10

185 Calls $4.05 49.5 -10

185 Puts $5.20 -49.9 -10

180 Puts $3.15 -34.7 +10

SEP(56)

Delta -31.3

Gamma -6.9

Theta 6.7

Vega -53.3

Credit -4,050

Margin 950

10 Point Strikes 5 Point Strikes


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Butterfly Wing Span IBM

Date: 7/22/2011 IBM Price: $184.56

5 Point Strikes10 Point Strikes


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Butterfly Wing Span RUT

Date: 7/22/2011 RUT Price: $839.15


890 Calls $1.70 9.8 +4

840 Calls $17.65 50.4 -4

840 Puts $19.85 -49.5 -4

790 Puts $5.80 -18.0 +4

AUG(28)

Delta -37.1

Gamma -3.1

Theta 113.8

Vega -337.0

Credit 12,000

Margin 8,000


880 Calls $3.13 15.7 +4

840 Calls $17.65 50.4 -4

840 Puts $19.85 -49.5 -4

800 Puts $7.50 -22.6 +4

AUG(28)

Delta -31.5

Gamma -2.2

Theta 81.8

Vega -238.8

Credit 10,748

Margin 5,252

50 Point Strikes 40 Point Strikes


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Butterfly Wing Span RUT

Date: 7/22/2011 RUT Price: $839.15



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Wing Span Considerations

Breakeven difference versus capital?

Implied Volatility environment? VIX level

Look at graph 15-20 days in the future

Market Volatility


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Delta at Beginning of Trade

Date: 7/22/2011 RUT Price: $838.95

Options Price IV Delta Trade Price IV Delta Trade

840 Calls $17.50 19.3% 50 -9 $26.65 20.6% 51 +9

AUG(28) SEP(56)

Delta 8.1

Gamma -2.7

Theta 71.3

Vega 345.0Debit 8,235


890 Calls $1.70 9.8 +4

840 Calls $17.65 50.4 -4

840 Puts $19.85 -49.5 -4

790 Puts $5.80 -18.0 +4

AUG(28) Delta -37.1Gamma -3.1

Theta 113.8

Vega -337.0

Credit 12,000

Margin 8,000

Calendar

IronButterfly


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Delta at Beginning of Trade

Date: 7/22/2011 RUT Price: $838.95



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Deltas at Beginning of Trade

Why butterflies are always short deltas?

Is that bad to be short deltas in a butterfly?

What to do about the short deltas?


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Which Strike to use for Calendars?

Date: 7/22/2011 SPX Price: $1345.40

Options Price IV Delta Trade Price IV Delta Trade1345 Calls $21.40 14.2% 51 -4 $30.65 14.4% 52 +4

AUG(28) SEP(56)

Delta 1.3

Gamma -0.9

Theta 42.7

Vega 245.9

Debit 3,700


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Which Strike to use for Calendars?

Date: 7/22/2011 SPX Price: $1345.40


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Better to Lean Long Deltas?

Date: 7/22/2011 SPX Price: $1345.40

Options Price IV Delta Trade Price IV Delta Trade

1355 Calls $16.10 13.8% 43 -4 $25.25 14.1% 46 +4

AUG(28) SEP(56)

Delta 11.0

Gamma -0.9

Theta 39.1

Vega 250.5

Debit 3,660


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Better to Lean Long Deltas?

Date: 7/22/2011 SPX Price: $1345.40


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Scaling or Full Capital?

Date: 7/22/2011 SPX Price: $1345.40


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Market Recently Dropped like a Rock!

Date: 6/15/2011 SPX Price: $1265.42


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Only use Half your Normal Size

Date: 6/15/2011 SPX Price: $1265.42 -22.45


1370 Calls $2.95 9.0 +5

1360 Calls $4.00 11.4 -5

1110 Puts $8.35 -11.3 -5

1100 Puts $7.55 -10.3 +5

AUG(65)

Delta -7.1

Gamma -0.3

Theta 14.9

Vega -119.7Credit 925

Margin 4,075

-2.08 SD


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Dan Sheridan

+1-800-288-9341

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Sheridan Options Mentoring, Inc.

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Ds Butterfly vs Condor

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