Dan Harvey's Portfolio Hedge

[Michael B]

I while ago Dan Harvey described a way he hedges his portfolio by using a butterfly. He also adds a long put, but let’s have a look at the butterfly.
Here are his guidelines:

• 20 to 28 days to expiration
• Short butterfly strike is 5% to 7.5% below the market
• Upper long strike is 50 points above the short strike
• Lower long strike is 25 points below the short strike

I placed one in TOS to see how it looks. This is 31 DTE, but this should not matter for now.


My question is: why can’t we use a simple put debit spread for the same purpose? I set this one in TOS for roughly the same break even and it costs a bit less, involves fewer trades and even P/L at expiration looks a bit better.



What makes the butterfly a better choice?
Thank you,
Michael

 

[status1]

I can't say I see much of a difference except a little less negative theta and more positive vega for the butterly
Also perhaps he can spread off the butterfly easier

 

[Michael B]

Well, to my surprise, my question got an answer from Dan Harvey himself. You can have it here during the first minutes of the Trading Group 1 meeting. Dan basically said you can't say one way is good and the other is bad, each has its own specifics.



Unfortunately I'm at work when these meetings are happening, but good enough I can view them later on.
Thank you Dan and thank you Tom for bring it up.