About the FruitFly
The FruitFly strategy is a short-term broken-wing spread on the SPX. It attempts to profit from time decay and capturing the spread between implied volatility and realized volatility. The trade has historically performed well in almost every market condition, though it will struggle in hard whipsawing markets when the market price is near the upper long strike of the spread, and will take on water when moving from low volatility to high volatility market environments.
- Average Trade Cycle: 2 weeks
- Profit Target: 5%
- Required Capital: $4,000
- Win/Loss Ratio: 6:1
- Annual Expectancy: ~60%
Why trade the FruitFly?
By trading this strategy and paying attention to what is going on under the hood, you should learn:
- How to modify parameters of a butterfly to achieve price targets at entry
- How to hedge with calendarized verticals/condors
- How to use theta as a viable adjustment trigger
- How charm (a second-order greek similar to gamma) affects position delta and time to expiry
*Performance records are a combination of simulated trades and live trades (we didn't start trading the strategy live until after we crafted it, naturally)
Do you trade this in your own account?
Yes. We take all of our own trades using live money in our own personal account. We also place these trades and others in a pooled account using other people’s money.
I’m a beginner at options – can I trade this?
If you understand how to build a butterfly spread and vertical spreads, you will be able to construct the orders and place the trades. It’s a 99% mechanical system, so psychology is more of a factor than understanding the orders. That said, if you are just starting out in options, you will likely not understand WHY we’re making the adjustments we are making, and the advantages of this trade over some others. But as you begin trading the plan, things should start clicking. We also offer mentoring/coaching to help you speed up the learning curve.
How susceptible is this trade to market fluctuation?
It can handle a 4-5% swing in the market typically. When volatility is rising and the market is falling, drawdowns will occur. When launching the trade in a higher vol environment, the entry will auto-adjust and widen the zone of profitability, allowing the trade more room to breathe.
What’s the profit target?
The profit target is 5% of the allocated capital, so $200 per $4,000 allocated.
How long is the average trade cycle?
The trade usually takes around 2 weeks start to finish, but can be as short as a few days, or as long as a month.
How much capital do I need to trade the FruitFly?
The trade plan calls for $4,000 per tranche, so that would be the minimum.
Is there an ideal environment for this strategy?
The trade performs best when volatility is falling or flat. When volatility is rising, the trade will not perform as well.
Why is it called “The FruitFly?”
This strategy has a relatively short lifespan. In the options trading world, butterfly spreads are often referred to as “flies” and a fly with a short lifespan is a FruitFly. Other candidates included the Copper Butterfly (a butterfly with a short life span) the Pop Fly (You’re often out very quickly) and a few others.
Do I need to monitor the market intraday?
No, this is a “check once per day” trade. We use EOD for our adjusting, but one could just as easily use the open or lunchtime to make trade adjustments.
Does the listed expectancy value include any compounding?
No, the listed expectancy is based on a fixed investment amount per trade without using compounding.
We’re happy to answer any questions you may have. Click here to send us an e-mail.