Bread & Butter Iron Condors

Quote from TskTsk:

The whole point of the skew is to make up for the fact that OTM options have paid off far more often than norm distribution would predict. Skew exists because fat tails exist. Wheter or not it's overstated, the only way to determine this is looking at historical data. And most historical data shows it's indeed overstated.
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i understand and agree with your statement... fat tails and black swans are similar but at the same time two totally different things... the farther out in the tail you go the fuzzer things get.... and no matter how overstated that might be in skew no amount of miniscual probability is worth the risk of selling way otm penny options in my opinion.....
this is the deal... if you realize how small the sample is for outside 2nd standard devation events their really are per individual securities.. its impossible to price... this is where i get to your one statement about at some point the risk to reward is worth it if probabilities are small enough... AIG i'm sure said that when they were valuating the issuance premiums of mortgage bonds.. or LTCM's levered blow up.. you can't wholesale these trades to the quanties you need to to make sense of selling pennies... its not worth it... making .01 percent even in a week isn't worth it.. one blow up and your spending your life making up for it wiht tht strategy..

This isn't smooth.. its messy..... from my understanding you can't just apply a smooth distrobution to everything and think that things become infinity less possible as you go outside the 98 percent plus moves.. The whole thing is a mess... constant volatility assumption is what kills you... if your at .20% percent vol... put on a spread.. then the stock starts realizing 120 %percent vol... those 7 sigma moves aren't even 2nd standard deviation moves... thats not exact math.. but you get the idea..

i'm editing this post again.. haha here goes.. and by the way the whole idea of volatility trading is a mean reversion buy relatively low sell relatively high priced options.. by relatively constantly changes and the mean is really flux... in my opinion its better to error on the side that its a fu*cking mess and not some neat tight in the box equation that you can just punch money in and out of..
 
@cdcaveman:

I am a big fan of Taleb as well and I am looking for ways to implement his "barbell" strategy. I found one possible way with earnings straddles/strangles. However, I also want to add some positive theta to the mix and therefore I look at ICs and IBs as possible candidates.
 
whats "DIA" mean anyway "D"id "I" "A"sk your opinion how many posts is appropriate in my life? haha... i have voice to text.. and i'm bored speaking spanish to mexicans in the hot sun all day cut me a break... i'm hopefully reading and learning my way out of this situation.. at least i speculate ; )
 
yeah Taleb... you can totally tell by his philosophy he was constantly dealing with options trading etc.. can't wait till his next book comes out.. And his Character Fat Tony is great... but i'll tell you i haven't found an effective way to bleed slow and turn out big profits....... i have found ways to lay my ass on the line and make big returns doing exactly what he says not to ... IE credit spreading etc.. i'm personally trying to learn some programming and reading books on statical arb.. Condors are blow up recipes for people who can't afford to take the time to hedge and roll and slash manage them.. i've always thought its like a perfect stratigy to sell to the public.. first it was the covered write.. (i don't consider myself not retail)
now everyone things they are going to make a couple hundo a year off Condors.. till their in the traders grave and we don't hear about how they blew up .. ... they are exactly what homeboy talks about ... he has two characters in his book.. guy banking every week who blows up.. and the patient one who can handle the pangs of bleeding slow.. to end up making the big pay out.. He stated that he made something like 90 percent of all his money trading in 10 days of his trading career
 
Quote from cdcaveman:

i understand and agree with your statement... fat tails and black swans are similar but at the same time two totally different things... the farther out in the tail you go the fuzzer things get.... and no matter how overstated that might be in skew no amount of miniscual probability is worth the risk of selling way otm penny options in my opinion.....
this is the deal... if you realize how small the sample is for outside 2nd standard devation events their really are per individual securities.. its impossible to price... this is where i get to your one statement about at some point the risk to reward is worth it if probabilities are small enough... AIG i'm sure said that when they were valuating the issuance premiums of mortgage bonds.. or LTCM's levered blow up.. you can't wholesale these trades to the quanties you need to to make sense of selling pennies... its not worth it... making .01 percent even in a week isn't worth it.. one blow up and your spending your life making up for it wiht tht strategy..

This isn't smooth.. its messy..... from my understanding you can't just apply a smooth distrobution to everything and think that things become infinity less possible as you go outside the 98 percent plus moves.. The whole thing is a mess... constant volatility assumption is what kills you... if your at .20% percent vol... put on a spread.. then the stock starts realizing 120 %percent vol... those 7 sigma moves aren't even 2nd standard deviation moves... thats not exact math.. but you get the idea..

i'm editing this post again.. haha here goes.. and by the way the whole idea of volatility trading is a mean reversion buy relatively low.. by relatively low.. relatively constantly changes and the mean is really flux... in my opinion its better to error on the side that its a fu*cking mess and not some neat tight in the box equation that you can just punch money in and out of..
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My RR comment was just meant to point out that probabilities need to be paid attention to when establishing RR, not wheter or not the probabilities are correct...for example I'd easily take a 1:100RR trade 1000x / month if I knew for certain the probs were 1:200 every time. But as you said, this is hard to know for sure.

Other than that I agree with you.
 
i come blaring out about that stuff.. partly cause i think i hate my formal education.. that tells me things are smooth predictable reliable.. and everything they teach you is useful in the real world of business.. BULLSHI7 HAHA. just get an education... take out of few loans if you need to.. you will get a good job and your life will be financially secure.. actually you'll have secured alot of profit to your creditor.. and you jump into the cog in the slavery wheel of corporate America..
PS i learned more selling dope in my youth about business transactions then i ever did in school..
 
btw.. i didn't mean to freak out on ya... its just the only thing that seems right to me about trading.. so i feel strongly about it ..
 
Quote from rocky_raccoon:

I guess I misunderstood you. So, let's say you have 10K and open one IC with max risk of $210 and max profit of $90 (using .30/.70 numbers from your other example).
Some time later you want to open another IC with similar parameters.
Will you close your first position and then open a second one (same risk) or open a second one in addition to the first one (double the risk)?
If the latter, at what point will you stop opening new positions?
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I see what you mean now.
No, I don't just do 1 IC (group) at a time to keep the risk at 2%.
Have quite a few going at once and closing over different months.
So the "Total Risk" is # of IC (groups) X 2% each.
So if you have 10 IC (groups) you're risking 20% of your Equity, as does a Stock Trader with 10 trades on with -2% Stops set for each trade.

It's hard to pick both a bottom and top for further out months of course, so that's another reason for Legging-In.
A lot of the trades are only 1/2 done. They're just single leg Credit Spreads at the moment.
:)

P.S.
By "group" I mean selling say 3 ICs at a time with the same top and bottom levels. The combined Max Losses for the group will not add up to more than 2% of Equity.
i.e. 3 ICs with a Max Loss of $70 each = $210 Group Max Loss, etc.
 
Quote from cactiman:


So the "Total Risk" is # of IC (groups) X 2% each.
So if you have 10 IC (groups) you're risking 20% of your Equity, as does a Stock Trader with 10 trades on with -2% Stops set for each trade.
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If you have 10 groups of ICs, are they correlated (e.g. RUT, SPX, NDX) or non-correlated (e.g. SPX, GLD)?
In other words, if a large movement happens will it negatively affect all your positions or only some?
 
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