Customer Reviews

Option Strategies for Directionless Markets: Trading with Butterflies, Iron Butterflies, and Condors (Bloomberg Financial)

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I have read a lot of books on options and most of them have one thing in common - they all just describe the various options strategies but do not provide any information on how to use the strategies effectively to make money. This book is no different.

The book delves into how a butterfly and a condor are structured. If you know that a butterfly is structured by a short straddle and protected by a long strangle further out of money, you can skip pages and pages of explanation on the structure. If you already know how to calculate the profit or loss for various prices of the underlying at expiration, you can again skip many pages. Same is true regarding the option greeks. Also, pages and pages of theory does not add much value if you already know about the construction of a condor, which is nothing but a short strangle protected by a long strangle that is further out of money.

What is sorely lacking from the book is any advice on how to practically use these strategies for profitable trading. The author mentions that you will trade these strategies when the market is range bound. The author does not give any practical suggestion on selecting the long strikes or wings of the butterfly other than mentioning in the passing that one may use probabilities, but does not go into details of how the probabilities are derived. If you are a butterfly trader you probably already know about standard deviations and probabilities and the importance of IV in calculating the expected movement. Also, once you are in a trade, how do you manage it when it goes against you? The author does not discuss that in any detail.

The chapter on 'Strategy Applications' has a lot of diagrams depicting when to leg into and out of the butterfly/condor depending on the market; whether it has broken out of a range and whether IV is falling or rising etc., This is one chapter that can be of some practical use.

All in all, if you are a beginner you might find some interesting reading on the butterfly and condor strategies. But all that and a lot more strategies are covered in depth in McMillan's 'Options as a strategic investment' book.

I would have liked to see more information on guidelines to determine the best range (width) to buy (sell). Specifics on Condor corrections like when is the best time, how to determine how much correction, and alternatives. I would have liked to see ideas on "winging into condors" or adding one side at a time.

After having learned much from Saliba's first book on options, I was disappointed that there wasn't much new here for experienced options traders. Those contemplating these types of directionless strategies should not forget that they will likely experience long strings of small winners puncuated by infrequent huge losses that can wipe them out.

Long Iron Condor is defined in conventional wisdom as Bull Put Spread and Bear Call Spread with a gap in between. (Wikipedia)
However, this book is relabeling it as Long Iron Pterodactyl.
Furthermore, this book redefines Long Iron Condor as a series of Calls with 4 different strike prices with no gap in between.
How confusing is it!
It appears that the author is trying to reinvent the strategy and giving them different names.

On the positive side, this book is being laid out as a workbook with quizzes and answer keys, have graphs and explanation how the greeks affect the strategies.
Had the author have the strategy definitions straight, it would be a worthwhile book to read.

Highly NOT recommended for beginners, and only worth a little glance for advanced traders.

this book did very little for me. already knowing the basics, i was looking for something more, but this book didnt deliver. dont bother.

Before I purchased this book, I was looking for a text that would allow me to perfrom options trading in a practical manner i.e I was looking for clear description in what to look for prior to setting up trades, how to define the probability of stocks / indices hitting my target, entrance strategies, exit stratagies, rescue scenarios and soild money mangement techniques. I was also looking for examples of "real" trades that were performed. When I got the book my first impression was that it looked like and read like a school mathematics text book. There were lots of information but not much that could help me practically. The diagrams in the book are well drawn, but again they look like school book text with lots of theory. I do not think having questions at the end of every chapter were really that useful. However the chapters were well written and did provide some useful information for the novice option tarder

I think a better approach would have been to focus on three or four strategies and provide text showing how to apply these to trades starting from what to look for, probability set up, entrance and money management. Also it would have been useful to provide a chapter on how to get started, dealing with things such as virtual trading, potential brokers, charting etc.

I'm usually pretty open to reviewing books. Sometimes I get books that I can't do justice to in reviewing. The following two books may be examples of that:

Option Spread Strategies: Trading Up, Down, and Sideways Markets

Option Strategies for Directionless Markets: Trading with Butterflies, Iron Butterflies, and Condors

I'm not an options trader. Do I understand the math? Largely, yes. Do I understand how they can benefit investors? Also yes. I occasionally use options to enhance income, but for the most part, I avoid using them for personality reasons. I fear that I would make bad decisions while working at a higher level of leverage. I don't trust myself.

As for the books, they are clear and well-written, giving both the common view of options, and the view using the "greeks" a la Black-Scholes. The chapters explain, and then offer tests at the end to see how well you have understood. These could be textbooks in a business school.

The books explain how you can make money in any environment if your view of the world is correct. That's the catch, though. Few of us get it right within the length of time before an option expires. Be wary of the correctness of your opinions.

Now, my opinion is not of the highest value here. Better to consult Adam Warner or Bill Luby, who have far more practical experience on a retail level. My experience is largely institutional with respect to options.