/ZB DEC Update

The split strike butterfly is doing well.  Up pretty decent and theta is working well. 

A couple of things I would like to clarify.  One is the terminology- calling this a split strike butterfly or a condor, or a short strangle with wings is irrelevant.  They are just terms and most positions of monthly premium sellers are just short options with wings for protection against black swan and for margin….  The width of the short strikes and long strikes is all personal preference of the trader, and comes with having traded for a while and understanding what one feels comfortable with. 

In the Case of the ZB, I want to put on a spread that I may not have to adjust, so I can be in and out as soon as possible.  With a butterfly, there is a higher chance of adjustment in my opinion, with a wider condor, there is more time I would have to sit in the trade to make my money.  I don’t like adjusting the ZB as much because of the potential slippage and my $3.00 commissions on futures options (no big deal I understand but why waste money) – also I have not traded these as much as equity options.

I am not sure why, but the /zb seems to give good premiums for the relatively low actual volatility….  Also the US Treasury bond market is huge, which makes me feel comfortable trading these future options.

When it comes time for adjustments, what adjustments one makes depends on the trader as well.  All adjustments can be looked at in hindsight as 20/20, but when making an adjustment there is ALWAYS a trade off.  Just like putting on an option spread, no spread is better than another, they are just different and must work for your style and trading psyche.  I will buy a vertical spread initially because I believe there could be a reversion to the mean, especially in bonds.  If the move from 120’5 looks to be permanent, then I will add the next spread to add theta and expand the expiration graph.