With the VIX ~30, shorter-duration strategies seem to be en vogue. Though increased turnover has many advantages, not least of which is the fast-tracking of one's market education, a large disadvantage looms - increased commissions/fees (C/F) as a percentage of profits. The issue is compounded by any adjustments that must be made during the life of the trade. Of the two listed below, which approach to maximizing flexibility and minimizing C/F is best?
Assume spot is trading at 100.
Closing: A 90/97.5/100 broken-wing fly is entered as +2-4+2. If spot moves to 102, we might consider buying-to-close the 97.50/100 spread, leaving us with a +2-3+1 with fewer negative Deltas. This method has the nice feature of combining an adjustment with a partial-shutdown of the structure, but if spot doesn't move all that much, we wind up paying for granularity that we didn't need in the form of C/F. Additionally, our Delta adjustment is inflexible; perhaps closing the spread will give us more/less positive Deltas than we really want at that point in time.
Rolling: An 80/95/100 fly is entered as +1-2+1. Again spot goes to 102. This time we roll up one of the shorts by selling the 95/97.50 spread, leaving us with an 80/95/97.50/100 condor. This method is leaner on C/F and offers greater flexibility in terms of fine-tuning Deltas, but it does expose the trader to more skew effects (since the distances between strikes have increased).
Which approach do you prefer? What else should I consider?
Assume spot is trading at 100.
Closing: A 90/97.5/100 broken-wing fly is entered as +2-4+2. If spot moves to 102, we might consider buying-to-close the 97.50/100 spread, leaving us with a +2-3+1 with fewer negative Deltas. This method has the nice feature of combining an adjustment with a partial-shutdown of the structure, but if spot doesn't move all that much, we wind up paying for granularity that we didn't need in the form of C/F. Additionally, our Delta adjustment is inflexible; perhaps closing the spread will give us more/less positive Deltas than we really want at that point in time.
Rolling: An 80/95/100 fly is entered as +1-2+1. Again spot goes to 102. This time we roll up one of the shorts by selling the 95/97.50 spread, leaving us with an 80/95/97.50/100 condor. This method is leaner on C/F and offers greater flexibility in terms of fine-tuning Deltas, but it does expose the trader to more skew effects (since the distances between strikes have increased).
Which approach do you prefer? What else should I consider?
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