Book Review - Options Strategies for Directionless Markets by Tony Saliba

Written on May 30, 2008 by OptionsRopeaDope

After reading about Tony Saliba in Market Wizards a decade ago, he became one of my heroes so to speak, because he spelled out how he may trades. If my memory serves me right, it was all-butterflies all-the-time, with way out of the money puts and calls as insurance in case of an “explosive move.” He gained much fame from making millions during significant market crashes (such as in 1987) when other traders were jumping out of windows, not because he knew it was coming, but because he was prepared for it.

This book has not been out long (there were no reviews on Amazon yet when I bought it) but when I spotted it I had to pick it up. Tony has written a couple of other books, including The Options Workbook: Fundamental Spread Concepts and Strategies for Investors and Traders, 3rd Edition which is a very basic explanation of standard strategies (covered call, collars) with only coverage of single-month spreads and hardly any discussion of how to select a strategy or how to manage it. Luckily, this current book gets much more in depth, and is targeted at a more sophisiticated audience.

The book starts with several chapters about butterflies from different angles, including call butterflies, put butterflies, and iron butterflies. It also spends alot of time on the greeks of a butterfly, and not only how they are related to time, but also how they are related to each other and to the overall value of a butterfly. Over and over, he stresses that butterflies work best when volatility is declining, and the best time to buy them is when they are cheap - that is, when IV is high.

He also gets into variants sch as broken wing butterflies, condors, and pterodactyls. He defines a condor as a butterfly with a single strike splitting the two short strikes (so, a condor of 4 consecutive strikes), and a pterodactyl with anything more than a single strike seperating the shorts. So, that would make all the condors I do pterodactyls, which although I don’t think I’ll change how I refer to them, I find pretty cool. I’d never heard them called that before. Again, he goes into a good amount of detail on condors (and pterodactyls).

Lastly, he has a couple of chapters on strategy, which I thought was very good - he talks a little about how to build into a butterfly from a ball or bear spread, and how to cash in in different scenarios. Such as, opening a bull spread when a stock breaks through resistance, and then adding a bear spread to complete the butterfly once it finds its new range, and the old resistance becomes support. I wish there had been more of this, but it’s the best butterfly-strategy discussion i’ve read.

The final part of the book is a multi-page interview with Anthony asking things most people would want to know, such as how he developed his approach, what were some of his most memorable trades (answer - the ones where the “insurance” paid off big time, even when a move left his butterlies in the dust) and what are his thoughts for succeeding as a retail trader.

I recommend this book if you trade options for income - its the most complete work on butterflies, and thier variants, including condors, that I’ve read. Not enough information to start buying butterflies immediately (for example, there’s no entry or exit criteria, etc) but alot of background info that will enable you to understand why different strategies work, or to fine tune your own.

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Posted in Trading Rules, Butterflies, Book Reviews