Yield Curve: steepening (short and intermediate rates fall, and long rates remain stable) + low interest rate volatility
Why in this situation we favor condor (short wings, long body) over butterfly (short barbell, long bullet)?
Is it because of condor has less convexity than butterfly?
A butterfly looks like a butterfly V
A condor looks like ___/
Convexity has to do with the structural differences in the bond.
The condor has a wider base while the butterfly as the same point base. A condor becomes a butterfly when the base narrows.
We favor condors when we can profit by shorting the interm (5/7/10 yr) bond and long the short (2yr) /long (30yr) bonds… or vice versa…
And this here, is an Iron Condor…
You’ve drawn the payoffs on, respectively, a strangle and a straddle.
A butterfly (or a long butterfly) has a payoff that looks like this: _/_.
A condor (or a long condor) has a payoff that looks like this: _/¯_.
Eh, I didnt say those were payoff diagrams… The butterfly does look like V and the condor does look like ___/ … stick figure!
I hope they test the bull bald eagle. Short the left wing, long the right wing, bull spread the intermediate.
If not payoffs, then what do they depict, exactly?
And where are the wing tips?