Strategies · Library · Options
§2.41Volatility
Long put butterfly
Buy one put at a low strike and one at a high strike and sell two puts at the middle strike, equally spaced. Same profile as the call version: a bet on a finish near the middle, with loss limited to the premium.
- Asset class
- Options
- Held for
- To expiry
- Data
- ARCANE has part of the data
- Symphony
- Cannot be built as a symphony
The rule
- Signal
- Neutral: expects a quiet market that settles near the middle strike.
- Entry and exit
- Buy a low-strike put, sell two middle-strike puts, buy a high-strike put, same expiry and spacing, for a small debit. Hold to expiry, or close early when price pins the middle.
- Sizing
- 1 long, 2 short, 1 long across three equally spaced put strikes
How it fails
- Maximum loss is the net debit, which occurs if the price finishes below the lowest strike or above the highest
- Profit needs a finish very close to the middle strike
- Decay helps only near the centre; wide swings hurt
Data it needs
- options chain with strikes and premiums
- implied volatility
- underlying daily price
ARCANE has the underlying daily close but no options chains or implied volatilities
How ARCANE uses it
A Call that an index ends within a narrow band around a level by a date matches this view; paper only.
Needs options; no long-only construction gives a pinned-price payoff.
Filed under the volatility card
Hold less after a month of high volatility and more after a calm one. The paper found this raised return per unit of risk, because volatile spells are not paid for with higher returns.
A paper plan from this card holds 5 to 63 days, stops at 2.5× the expected move and uses at most 50% of your risk budget. The card
Source: Kakushadze and Serur (2018), 151 Trading Strategies, §2.41, p. 33 of the SSRN version. Described in our words. Volatility is ARCANE’s filing, not the book’s.