Strangled Butterfly

#1

Your idea of a strangled butterfly is very interesting. I can envision it as a single structure or a series of trade structures (e.g. move from one construction to the next or as a combination). Hopefully, we can build a discussion here if others are likewise interested.

Being new to Apex strategies, I fall back on equity options experience, and in Charles Cottle’s (complex) book (link below), he describes a similar idea and said others have told him it is perhaps the “ultimate” option structure given its ability to win in many scenarios. The option structure apparently evolved from a common adjustment strategy to a butterfly: usual +1, -2, +1 construction and adjusted as the trade moves above (or below) the defined range you add the call (or put) at the point of the wings (some call this a “slingshot”). As we know, there are times when the moves are so swift it is hard to adjust a butterfly, so the trade can be designed as a “pre-adjusted” butterfly on both sides which would be a +2, -2, +2 which could be called a double slingshot - which effectively is a strangled butterfly. This would be one version of the so called “ultimate” structure. [imo, this can be an effective way to finance expensive strangles esp in high VIX conditions AND it can give a strangle a way to break even or minimally profit when expected large moves fail to occur.]

Now given how you have successfully engineered a much simpler iron butterfly for binaries / box spreads, how would you construct either the sequential placement of the butterfly and strange, or the strangle-butterfly combination? Text reference - [Removed link as see no authorization from author to post his work online for free can buy the book on amazon or kindle though :slight_smile: I know you whee not hosting this file just don’t want to promote such links ]. I think the book cover is a double butterfly + Strangle combination but it is not really well described in the book; in fact, the book is challenging, and not one i would recommend, but just providing as a perhaps a description of some related ideas.

#2

To really get a live discussion going hop on p3 signals. It now comes with a live chat room. There have been a lot of butterflies called out in the past week in the room. Strangled and no so strangled. Testing in real time.

Note for other reading this - there is a video under bonus webinars in the menu above that talks about this strategy in more depth. I go into the strangled butterfly (aka a slingshot)

Simply Buy OTM Higher Strike (i.e. buy for $10 (risk $10 profit potential $90) XYZ Strike at 1010 Sell ITM higher strike (i.e. sell at $25 ($25 profit potential - $75 risk) XYZ strike at 1005 MARKET PRICE XYZ at 1000 Buy ITM lower strike (i.e. buy at 75 ($25 profit potential - $75 risk) XYZ strike at 995 Sell OTM lower strike (i.e. sell for $90 (risk $10 profit potential $90) XYZ strike at 990

If the market expires above 1010 you make $30 (Bought OTM makes 90 - Bought ITM makes 25 - sold OTM looses 10 Sold ITM loses 75 -)

If the market expires between 1005 and 995 then you make $30 Bought OTM loses 10, sold otm loses 10 - Bought ITM makes 25 Sold ITM makes 25

If the market expires below 990 you make $30 (Sold OTM makes 90 - Sold ITM makes 25 - bought OTM looses 10 - bouth ITM loses 75)

Only issue… If it expires between 1005 and 1010 you lose 75 loss 1 ITM 10 loss on box OTM = $20 loss - make 25 on other ITM Strike $70 loss (so this jacks the risk/reward)

Only issue… If it expires between 990 and 995 you lose 75 loss 1 ITM 10 loss on box OTM = $20 loss - make 25 on other ITM Strike $70 loss (so this jacks the risk/reward)

Ideas - is do say itraday at 3 pm daily at 3 pm or daily and weekly or intraday and weekly (expiring at same time) to do a even tighter strangle

#3

Darrell: Is it possible to buy a binary and sell one at the same strike without the second order closing out the first order? (To strangle at a certain strike price.)

#4

Not unless a different expiration time

Even if you could no advantage as risk reward would negate it self

But you can strangle different strikes same expiration

#5

If it expires:

Above 1010 = +$30 At or below 1010 = -$70 At or below 1005 = +$30 At or below 995 = -$70 At or below 990 = +$30

Correct?

#6

Close (did not include the ranges just put at or below) i think this is what you meant but to clarify:

Strangled Butterfly ie market is at 997.5

Buy 1005 strike for 10 (10 risk 90 profit potential) Sell 1000 strike for 25 (75 risk 25 profit potential) Buy 995 strike for 75 (75 risk 25 profit potential) Sell 990 strike for 90 (10 risk 90 profit potential) Net $30 profit potential $70 risk

if it expires above 1005, at or below 990 or at/above 995 and below 1000 you can make $30 You only lose above 1000 and below 1005 or at/below 995 and above 990 - 70

So flat or big move up/down you make money - medium move up /down you lose

Above 1005 Net $30 (lose $10 on 990, make 25 on 995, lose 75 on 1000, make $90 on 1005 Above 1000 and below 1005 net -70 (lose $10 on 990, make 25 on 995, lose 75 on 1000, lose $10 on 1005 At or below 1000 and above 995 +30 (lose $10 on 990, make 25 on 995, make 25 on 1000, lose $10 on 1005 At or Below 995 and above 990 -70 (lose $10 on 990, lose 75 on 995, make 25 on 1000, lose $10 on 1005 At or Below 990 net +30 ( make $90 on 990, lose 75 on 995, make 25 on 1000, lose $10 on 1005

[quote=s_mark220]If it expires:

Above 1010 = +$30 At or below 1010 = -$70 At or below 1005 = +$30 At or below 995 = -$70 At or below 990 = +$30

Correct?[/quote]

#7

I assuming it’s understood that one range ends where the next one begins.

#8

like i said figured its what you meant- just figured i would clarify for future readers of the post