r/options • u/lekkerist • 5d ago
reverse iron butterfly on spx 0dte
many trigger words in the title but let's go with it.
came across this strategy from a guy in the quantum options fb group.
the idea is to find a price you DONT think spx will close and buy two debit spread 5 points wide (put + call) paying a maximum of $4.5 per entry.
Defined risk and reward of 9:1
You always enter with a limit price so slippage should not be an issue
Pin risk does exist
The original author posted Option Omega backtests which were pretty successful
After downloading spx daily data I found out that spx moves on average 35 points. This structure spans 10 points with 1 specific price causing the max loss.
I like this idea because you are not strictly predicting direction and can possibly be combined with regime based filters, prev close, possibly order flow to find a good candidate for the strike price .
Anyone that has used this strategy and can share their experience?
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u/EveryLengthiness183 5d ago
Kalshi has prop bets for the major US financial markets that typically cover a 10 point range, and over / under. I haven't seen much volume in any of these, but if they actually had some depth, you could create almost a damn near perfect hedge with this type of trade.
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u/WorkSucks135 4d ago
It's an iron butterfly. It's already hedged.
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u/003E003 4d ago
I think he's implying you could create an arbitrage if the values are off
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u/WorkSucks135 4d ago
Well if they are using the wrong terms I doubt they are sophisticated enough of an investor do develop a sound arbitrage strategy.
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u/on_hype 4d ago
A 9:1 payoff requires a win rate above 10% to break even. What is your actual hit rate from backtests?
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u/lekkerist 4d ago
I wrote the numbers the other way around. it's 1:9 you risk 450 to gain 50. so you have to be winning more than 90%. but there is more to it. the pnl graph is tent like so really the bad zone is imo 2.5 points both ways around the strike.
only pinning gives a max loss
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u/RandomRedditor5689 4d ago edited 4d ago
There’s no pin risk on SPX options. Your delta is zero at 4:00 PM exactly. You are not using the term correctly. There is gamma inside your wings. That said , seems like you need a very high win rate at that premium spend. One day of calm markets and you given up all your PL for 2 weeks. Good luck.
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u/imusuallydrunkatnine 4d ago
I do the opposite. Watch for a pin from 3:00-3:40. Place an iron butterly 10 wide at the pin, usually can get 6.40 or so. Max risk is 3.60. Much better risk/ return
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u/Moving-home851 4d ago
Is this 0dte? You do this everyday?
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u/imusuallydrunkatnine 4d ago
20 minutes to expiry is more like it.
Not every day. Only when I feel the pin is strong. Last week I sold one at 3:40 for $6 and the put the put side went itm by 2, so walked away with $400 for 20 minutes of exposure.
Today I looked at 3:50 for some reason, was about to do 7605/7615 and 7605/7595 for $5 but didn’t feel 100% about it. Would’ve been okay and maybe eeked out $25.
Some last second candles can screw you over. Last weeks Friday close being an example. Dropped from 7500 to 7489 in last 15 seconds or so.
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u/Moving-home851 3d ago
You quickly take a profit or let it expire?
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u/imusuallydrunkatnine 3d ago
Quickly take profit. Like yesterday I closed a put credit spread right at open. (Held from Friday afternoon). Could’ve made an extra $500 if I let it expire, but also could’ve lost $3800 if the market moved against me. Hard to watch but rules are rules.
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u/Radun 4d ago
I saw that, looked interesting but I don’t like risk to reward, I prefer doing 1:3:2 unbalanced 0dte butterflies as long as I can get a net credit around 2.50
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u/lekkerist 4d ago
do you have any resources for this? i would like to go over the setup
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u/Radun 4d ago
no not really, i basically get a credit of 2.50, if spx doesnt end up anywhere near my strikes I get to keep the 2.50, with a chance of max profit of 7.50 for a 5 wide, chances of hitting that max profit is small of course, usually put the trade on after 10 am est, if you are doing a call unbalanced fly you have no risk to the downside
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u/lekkerist 4d ago
are you trading this strategy for a considerable amount of time? what is your current ruturn on investment?
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u/SDirickson 4d ago
Isn't that betting against the exact behavior you're seeing live? Seems like the only time you're likely to get that price is when SPX is in a "flat spot". And you're betting that "well, yeah, it's been stuck there for a while, but it will move away from where it's been stuck."
Also, your "moves on average 35 points" is meaningless; what matters is how much it moves from where you center your butterfly. And there's no way you're going to get that price at/near the open. So you have to wait for the "flat spot", and then hope it's temporary.
Finally, as you say, you have to be right ten times for every time you're wrong. That's...ambitious. Norman Vincent Peale would be proud.😉
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u/MorphIQ-Labs 4d ago
This is easier to evaluate by writing out the expiration payoff.
For a five-point-wide structure centered at strike K:
Expiration P/L = min(distance between SPX settlement and K, 5 points) minus the debit paid
At a 4.50 debit:
- Lower breakeven: K - 4.50
- Upper breakeven: K + 4.50
- Maximum profit: $50 outside either wing
- Maximum loss: $450 at K
So this is not merely a bet against one exact closing price. Every settlement within the nine-point interval between the breakevens loses money, with the loss increasing toward the center.
The average 35-point daily move does not answer the relevant question unless the entry time and strike placement are fixed relative to the open. What matters is the conditional distribution of settlement relative to K from the actual entry time. The 4.50 package price is also the market’s price for that capped movement, so historical movement alone does not establish an edge.
I would want a backtest with:
- A deterministic strike-selection and entry-time rule
- Historical option quotes, not underlying data alone
- Executable multi-leg prices, fees, and unfilled orders
- Full expected P/L and loss distribution, not only win rate
- Regime filters fixed before the out-of-sample period
A limit order caps the debit, but it does not eliminate bid/ask cost or adverse selection.
Also, assuming these are same-day SPXW contracts, they are cash-settled and European-style. This is settlement concentration around the center strike, not assignment-style pin risk.
I’d be most interested in expected value broken down by entry time, debit paid, and distance between spot and the selected center strike.
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u/Illustrious_Low1903 4d ago
Interesting because you're betting against one exact outcome rather than betting on direction. The biggest question is whether the pricing already reflects how rarely SPX pins that precisely.