Bread & Butter Iron Condors
- Thread starter cactiman
- Start date
<<< I would speculate everyone's appetite for risk is different >>>
I would speculate that everyones appetite for "greed" is different.
I would speculate that everyones appetite for "greed" is different.
With Iron Condors you get a larger credit for the same amount of risk.
1 SPY Bull Put Spread = $100 Margin
1 SPY Bear Call Spread = $100 Margin
Combine the 2 into a SPY Iron Condor = $100 Margin (because you can't lose on both sides at once, etc.)
The "catch" is you've now drawn 2 lines in the sand, so there's two ways to lose instead of one.
And one of those Credit Spreads in a contra-trend position, which is a much riskier "guessing" type of trade.
If there's a clear resistance area up above, you can sell a Bear Call Spread above it and probably be OK.
But now SPY is going to new highs, so there's no way to know where to draw the upper line with the Bear Call Spread.
Will it make 145, 147, 150? Who knows.
:eek:
1 SPY Bull Put Spread = $100 Margin
1 SPY Bear Call Spread = $100 Margin
Combine the 2 into a SPY Iron Condor = $100 Margin (because you can't lose on both sides at once, etc.)
The "catch" is you've now drawn 2 lines in the sand, so there's two ways to lose instead of one.
And one of those Credit Spreads in a contra-trend position, which is a much riskier "guessing" type of trade.
If there's a clear resistance area up above, you can sell a Bear Call Spread above it and probably be OK.
But now SPY is going to new highs, so there's no way to know where to draw the upper line with the Bear Call Spread.
Will it make 145, 147, 150? Who knows.
:eek:
<<< The "catch" is you've now drawn 2 lines in the sand, so there's two ways to lose instead of one.
And one of those Credit Spreads in a contra-trend position, which is a much riskier "guessing" type of trade. >>>
While only one of those contra trend positions will be in that naughty zone at a time, aren't they both at risk of being in that same zone during the life of the contract,... and perhaps multiple times for both sides?
The longer the contract, the more times each side is at potential risk.
I'm still not seeing the attraction of the IC over the single spread, if spreads are ones prefered strategy.
It seems the attraction of the IC is all about "greed".
That you get 2 credits vs one, for the same margin.... but only at the cost of also doubling your risk of a wipe out or severe damage.
Not to mention double the stress, and possibly double or more commissions.
Seems to me IC sound better on paper than in reality....... unless you are skilled enough to know when to initiate them, and on what stock or index, and what spread gap to use, and when to adjust or close, and what length of contract, ect.....
Frankly, the extra credit really doesn't seem worth the extra risk, stress, work, commissions, ect....
Or am I missing something.
And one of those Credit Spreads in a contra-trend position, which is a much riskier "guessing" type of trade. >>>
While only one of those contra trend positions will be in that naughty zone at a time, aren't they both at risk of being in that same zone during the life of the contract,... and perhaps multiple times for both sides?
The longer the contract, the more times each side is at potential risk.
I'm still not seeing the attraction of the IC over the single spread, if spreads are ones prefered strategy.
It seems the attraction of the IC is all about "greed".
That you get 2 credits vs one, for the same margin.... but only at the cost of also doubling your risk of a wipe out or severe damage.
Not to mention double the stress, and possibly double or more commissions.
Seems to me IC sound better on paper than in reality....... unless you are skilled enough to know when to initiate them, and on what stock or index, and what spread gap to use, and when to adjust or close, and what length of contract, ect.....
Frankly, the extra credit really doesn't seem worth the extra risk, stress, work, commissions, ect....
Or am I missing something.
There are more commissions on an IC, quite right, so that needs to be factored in.
There are other variables too.
You can choose a top and bottom and open the IC today, or you can leg-in.
You can sell the Bull Put Spread after a Bull Flag and on a down day for a much larger credit (the Puts are more expensive) than you could sell them for on an up day like today.
Then you can wait for a day like today to sell the Bear Call Spread, and get a much larger credit (for the more expensive Calls) than you could after a dip and on a down day.
So if you leg-in properly you can get a MUCH higher credit for the IC than you can with a bad entry on just a Bull Put Spread.
So I don't think you missed anything.
The safer way to trade an uptrend is with a Bull Put Spread.
The more lucrative, but less sure - more can go wrong way, for the same amount of risk, is with an Iron Condor.
Each trader will decide based on their personal approach, etc.
I can see why the IC is such a popular strategy.
But I like the theory behind an IC, more than it's potential reality.
If I want a double credit in the future, I think I'll instead consider selecting a less OTM credit on my naked puts.
Good discussion. Thanks to all.
But I like the theory behind an IC, more than it's potential reality.
If I want a double credit in the future, I think I'll instead consider selecting a less OTM credit on my naked puts.
Good discussion. Thanks to all.
How about an OTM Call Credit Spread to go with your Naked Put? I guess that would be a 3/4 IC.
that makes sense... selling puts on down days.. ATM i actually have a client in my day to day business.. that sells ATM or slightly ITM puts on the regular.. but he wants to own the stock on a longer term basis.. so the extra time premium in put selling is just a little leg up to get into the stock.. then when he sells calls.. he sells them ITM instead of just selling the stock outright.. why not get paid a little to exit your stock is the thought.. he is still by nature a fundimental investor.. but even then he sells puts on down days and in high volatility environments where he can pick up great companies that have excessively price vol due to macro vol effects in the market.. he doesn't just trade puts on the regular.. only when the wind is in his favor.
I find it much easier to evaluate, and thus have a higher "probability" of being profitable,... to determine a stocks potential downside support area, than it's upside resistance.
And much easier to evaluate a stocks area of downside support, than knowing if a stock will rise, or when it will rise, or how fast it will rise, or rise by how much, or when it will stop rising, ect...
Determining a stocks downside support area, is also easier than evaluating whether a stock or index will remain inside a trading range box. And knowing when to make adjustments inside that box.
Selling puts is not as sexy as doing credit spreads or IC's,... but I find it less stressful, less risky due to less leverage, the profits more probable, the downside risk less potentially devastating for a similar % drop, and over the L-T potentially just as profitable.
And I like that I can be wrong in terms of my timing, but still be profitable if it turns out I was right days, weeks or months after the contract expired.
However, selling puts is not for everyone. That also requires a certain skill and discipline. We each need to play to our own strengths.
Going out. Read you later.
Good discussion.
And much easier to evaluate a stocks area of downside support, than knowing if a stock will rise, or when it will rise, or how fast it will rise, or rise by how much, or when it will stop rising, ect...
Determining a stocks downside support area, is also easier than evaluating whether a stock or index will remain inside a trading range box. And knowing when to make adjustments inside that box.
Selling puts is not as sexy as doing credit spreads or IC's,... but I find it less stressful, less risky due to less leverage, the profits more probable, the downside risk less potentially devastating for a similar % drop, and over the L-T potentially just as profitable.
And I like that I can be wrong in terms of my timing, but still be profitable if it turns out I was right days, weeks or months after the contract expired.
However, selling puts is not for everyone. That also requires a certain skill and discipline. We each need to play to our own strengths.
Going out. Read you later.
Good discussion.