What are broken wing strategies and how to trade them

[comm4300]

@Gmt900

Did you make a check with your broker about the possible margins and about if he would be able to fill your orders (and in what way/ leg by leg or an order at once) for such an option strategy?

DanPickUp

Hi Dan,

as far as i know this strategy is to be implemented leg by leg. we do not have order window to place this strategy to go as one order.

only calendar spread can be placed as one order via NOW/NEST trader. other strategies...are to be placed leg by leg..no single order option available.

 

[DanPickUp]

Hi Dan,

as far as i know this strategy is to be implemented leg by leg. we do not have order window to place this strategy to go as one order.

only calendar spread can be placed as one order via NOW/NEST trader. other strategies...are to be placed leg by leg..no single order option available.

Ok, lets see if we get some more comments on that subject. Gmt just told me in a PM that he will check with his broker what can be done in his case.

 

[ananths]

Hi,
Thanks for the thread and bringing an idea to the forum..

Just to analyze this and to be sure what I'm thinking is right...let us consider this example.
Long 5850PE
Short 5800PE
Short 5750PE
Long 5650 PE (note: 5700 skipped to form a broken wing)

If the selection of strike prices are wrong then my analysis is wrong..so please bear that in mind.

I just checked in options oracle to see the RR. Please see the images below.

Link - http://imageshack.us/photo/my-images/203/ifom.png/

Link - http://imageshack.us/photo/my-images/716/0ftr.png/

I think RR is not in favor here because its almost 1:1

You will have to have 4 legs to the spread for which we need to pay more brokerage. There is no 4L spread order possible with any broker I believe. So chances of missing few points is high.

I think this would be considered as 2 spread orders (1 credit and 1 debit) so per spread margin would be 18k to 20k...hence total would be around 36k for 4 legs or little more than that..say 40k.

If the selection of strike prices are correct and if I understand the strategy correctly I don't think this has good RR.
Please let me know if any mistake here..:thumb:

 

[DanPickUp]

@Ananths

Thanks to bring up those screen shots from your market. :thumb:

As it is possible for you to show this pictures, could you post some other analyzing picture when done the BWC more out of the money? Say 200 or even 300 points and this with an iron broken wing condor, as you post the pure put broken wing condor gmt900 mentioned.

Iron wing broken condor, as you know with the put spread and the credit spread. Margin will not change much, but the picture should show up different.

Take care / DanPickUp

By the way: In the above case you surely not have to show the link, as it is clear from what link you have the post from and you even uploaded it by your self.

 

[ananths]

hi Dan,

Re post#14---

Selected far OTM prices,
long 5550PE
Short 5500PE
Short 5450PE
Long 5350PE

Do you mean to say the 2nd and 3rd leg to be far OTM from the first 2 legs?

 

[DanPickUp]

@Ananths

Will be back tomorrow and then let us discuss what I mean. For the moment: An iron condor has a put spread and a call spread. Now you lift one leg on either side and you have again a broken wing strategy, but this time a broken wing iron condor or even a broken wing iron butterfly.

Take care / DanPickUp

 

[ananths]

@Ananths

Will be back tomorrow and then let us discuss what I mean. For the moment: An iron condor has a put spread and a call spread. Now you lift one leg on either side and you have again a broken wing strategy, but this time a broken wing iron condor or even a broken wing iron butterfly.

Take care / DanPickUp

Hi Dan,
I'm bit confused with what exactly you asked....not going to think about it for now as its time to sleep ...will see tomorrow. good night..


Can you provide an example strike prices to make it easy...

 

[gmt900]

Thank you all members who have shown interest in this thread.
I will give a little background of how I have come to the stage of exploring broken wing strategy for getting regular income with least risk potential.
I started with short straddle/ short strangle for nifty and earned handsome profits till I realised one bad incident can wipe out all your gains. Then I tried delta neutral strategy which I thought was simple to implement but was not so in practice.
Afterwards I thought long iron condor is the safest strategy, but realised that the R/R ratio isn't good.
I am looking for a stategy with a R/R ratio of 2:1 or better and which will not require "emergency " adjustment.
For broken wing strateg there will be two short legs and two long legs total margin required will be about Rs 50,000 for one lot. The premiun received and premium required will cancel out.
Thanks and regards,
gmt 900

 

[DanPickUp]

@Gmt900

To make it short: You are looking for something which not exist.

What ever strategy you choose, the market earlier or later will test you to the extremes. So, you need to know with every option strategy you choose the emergency adjustment. If you think in an other way, you are on the wrong path.

To me the biggest problem again with any strategy which includes shorts in your market is the margin. As you say you traded short straddles and short strangles, this seems to be no problem for you, isn't it?

Coming to the BWC and BWB. Both are very good strategies. How do they become good? We who trade and implement them make them good. So the trader who is in charge of the strategy has to understand what he is doing. The same applies to future trading. There are no bad strategies. The strategies become bad when being traded the wrong way. I could now start to talk about the pros and cons from BWC and BWB. Would this make sense? No. Why? Let me show you some screenshots from my trading desk:

Broken Wing Butterfly only with calls

Broken Wing Iron Condor with put and calls

and here the next level:

Synthetic Broken Wing Iron Butterfly

Synthetic Broken Wing Iron Condor

As you see, what ever was done is perfectly managed over the zero line. Why? Because the way it is traded. You see four different ways of trading Broken Wing strategies and each one is as good as the other one. So no need for pros and cons. But what is needed? A trading plan and the knowledge how to make them looking like that. Here the question occurs: Do you just want to implement a strategy and then do as little as have to be done or are you a trader which likes to adjust and to play the game according to market moves? I guess in your way you prefer the way you not have to do much. So what could be your solution? Credit Spreads.

Before I move on, if needed, I will wait for your comment on the above.

Take care / DanPickUp

 

[gmt900]

@Gmt900

To make it short: You are looking for something which not exist.

What ever strategy you choose, the market earlier or later will test you to the extremes. So, you need to know with every option strategy you choose the emergency adjustment. If you think in an other way, you are on the wrong path.

To me the biggest problem again with any strategy which includes shorts in your market is the margin. As you say you traded short straddles and short strangles, this seems to be no problem for you, isn't it?

Coming to the BWC and BWB. Both are very good strategies. How do they become good? We who trade and implement them make them good. So the trader who is in charge of the strategy has to understand what he is doing. The same applies to future trading. There are no bad strategies. The strategies become bad when being traded the wrong way. I could now start to talk about the pros and cons from BWC and BWB. Would this make sense? No. Why? Let me show you some screenshots from my trading desk:

Broken Wing Butterfly only with calls

Broken Wing Iron Condor with put and calls

and here the next level:

Synthetic Broken Wing Iron Butterfly

Synthetic Broken Wing Iron Condor

As you see, what ever was done is perfectly managed over the zero line. Why? Because the way it is traded. You see four different ways of trading Broken Wing strategies and each one is as good as the other one. So no need for pros and cons. But what is needed? A trading plan and the knowledge how to make them looking like that. Here the question occurs: Do you just want to implement a strategy and then do as little as have to be done or are you a trader which likes to adjust and to play the game according to market moves? I guess in your way you prefer the way you not have to do much. So what could be your solution? Credit Spreads.

Before I move on, if needed, I will wait for your comment on the above.

Take care / DanPickUp

Yes , I prefer strategy where I do not have to do much once I enter the trade. This is not because I am risk averse or because I don't like to take challenges ( or else I won't be dabbling in trading options anyway). It is simply that it is too early for me to try strategies which require frequent adjustment. I would definitely try some advanced stuff once I get the hang of trading these strategies.
I have looked at the four strategies and as you say there is no question of pros and cons. In all the strategies, even if you don't do anything after entering the trade, you will not make loss. The profit will depend upon how the market moves.
One has to have a trading plan and the KNOWLEDGE. I suppose the strike prices of various legs is one of the important aspects in implementing all the strategies.
I tried to test a couple of these strategies in OptionsOracle but could not succeed in keeping maximum loss to zero.
Why do you feel margins is a big problem for our markets? For nifty if there are two short legs, the margin of 50,000 per lot is not high. For stocks it will be much higher.
I am eager to learn more.
Thank you very much.
Regards
gmt900