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Buying Expected Move Butterflies

Market Measures

Are there merits to strategies that are profitable if the underlying moves to either the upside or downside expected move?

One such strategy would be two Butterfly Spreads, purchased at the 16 delta call and 16 delta put strike.

Study:
  • S&P 500 ETF (SPY)
  • 2005 - Present
  • 45 DTE
  • With these parameters, we combined the following strategies:

Expected Move Put Butterfly:

  • Short two 16 delta puts, Long one put 2% above & one put 2% below the 16 delta strike

Expected Move Call Butterfly:

  • Short two 16 delta calls, Long one call 2% above & one call 2% below the 16 delta strike

  • Managed at 10%, 25%, or 50% of max profit, or held to expiration

Results

Ultimately, the trade barely made money throughout the duration of the study. The fairly low success rates make sense considering the low probability nature of the trade. High and Low IVR occurrences did nothing to improve the results of these trades.

Lastly, the team compares these trades to low IV, double calendar trades in SPY. These trades, historically, had far better results and utilize fewer contracts than the expected moves butterlfies.

Tune in to hear Tom and Tony's full breakdown of the study!

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