Bread & Butter Iron Condors
- Thread starter cactiman
- Start date
. I love sbux
Good discussion so far, gentlemen.
I've been doing some additional thinking about iron condors (which I have been trading for a few years, with reasonable success-- but not 40%+ per year) and I'm going to set up a hypothetical trade to expire Sept 21 in SPX options (which is my usual trading vehicle of choice for IC's). I realize that the Sept expiry is closer at hand than the usual length of time normally chosen for IC's, but I want to have a group of people watch along with me and I'd you all to chip in on the discussion along the topic of adjustments and whether a completely balanced setup is best or whether some other setup might be better.
Here's the hypothetical position:
Puts-- sell 5 1325puts, buy 5 1300puts for a credit of 1.25*5 or $625
Calls-- sell 5 1455 calls, buy 5 1480calls for a credit of 1.60*5 or $800
The total net credit is $1425, and the capital at risk is $12500. We'll assume our "player" has $50,000 available, so if the market did not change, he would make 2.850% on total capital in a month if held to expiry and the
options all expired worthless.
Let's watch and see what happens with this trade. I have used the closing quotes form Friday, August 31 as our starting place. I'll update things each day as it goes toward expiry. Both sold options are at or as close as possible to the 10 delta position. We'll adjust at 16 deltas, using the close of the day prices (This is not a real position, so I'll not adjust in real time, but rather at the close of the day and post in the evening). I welcome your comments and suggestions for adjustments.
I've been doing some additional thinking about iron condors (which I have been trading for a few years, with reasonable success-- but not 40%+ per year) and I'm going to set up a hypothetical trade to expire Sept 21 in SPX options (which is my usual trading vehicle of choice for IC's). I realize that the Sept expiry is closer at hand than the usual length of time normally chosen for IC's, but I want to have a group of people watch along with me and I'd you all to chip in on the discussion along the topic of adjustments and whether a completely balanced setup is best or whether some other setup might be better.
Here's the hypothetical position:
Puts-- sell 5 1325puts, buy 5 1300puts for a credit of 1.25*5 or $625
Calls-- sell 5 1455 calls, buy 5 1480calls for a credit of 1.60*5 or $800
The total net credit is $1425, and the capital at risk is $12500. We'll assume our "player" has $50,000 available, so if the market did not change, he would make 2.850% on total capital in a month if held to expiry and the
options all expired worthless.
Let's watch and see what happens with this trade. I have used the closing quotes form Friday, August 31 as our starting place. I'll update things each day as it goes toward expiry. Both sold options are at or as close as possible to the 10 delta position. We'll adjust at 16 deltas, using the close of the day prices (This is not a real position, so I'll not adjust in real time, but rather at the close of the day and post in the evening). I welcome your comments and suggestions for adjustments.
Definitely a ballsy trade so close to expiration. Glad its not real!!
Ok, so its just a test to see if you could trade out of a bad situation? Its very likely this trade will be in a tough spot and the additional trades you will make will be to lock in losses. The neg vega and the gamma on this trade far outweighs theta in any measure. Too many traders are laser focused on that daily time decay and lose.
A lot of traders trade this way and as long as you understand the risks of a trade like this, go for it. Way too risky for me but we all have our own style. You might get by for a while with night sweats and sooner or later, you will get torched.
For this trade, add vol, time and price to the equation and you will see the dangers of this set up.
That said, I hope its a trade for others to learn why this is such a bad trade. No offense by the way!
I do trade ICs, but not on SPX... I usually trade NDX and RUT.
I would also consider this trade to risky for me
In looking at the SPX this morning, I might consider the following:
Put 1475/1510
Call 1280/1245
For 3 Contracts this would require about 10275 in Maintenance and get you $.75 or $225 (2.2%) in premium. Getting aggressive on the fill may get you another $.25 on the premium.
I would not go any closer to ATM to start this trade. I look at deltas of 5 of less to execute my ICs.
I will watch both to see how they go.
Guys, thanks for the comments, so far. Thanks also for noticing that this is not a real trade. I'm going to track carefully the value of the position splitting it into calls and puts. This position is fairly close to the market, and will likely require adjustment if the market starts to become volatile. Then the "fun" will begin! If the market bores us to tears with no movement, we'll do this again and see if we can learn something.
On the topic of SPX vs. RUT and NDX. I found the NDX more difficult to adjust because of wide strike spacing. The RUT is fine. If the NDX had consistent 10 pt spacing all the way up the chain, I'd consider it again. The SPX guys are famous for being difficult to get good fills. I've found them mostly OK. Usually 5 cents off mid will do the trick, if you're patient, but sometimes it takes 10 cents. Getting out to close is usually hard, especially for less than 25 cents with more than a week to go.
On the topic of SPX vs. RUT and NDX. I found the NDX more difficult to adjust because of wide strike spacing. The RUT is fine. If the NDX had consistent 10 pt spacing all the way up the chain, I'd consider it again. The SPX guys are famous for being difficult to get good fills. I've found them mostly OK. Usually 5 cents off mid will do the trick, if you're patient, but sometimes it takes 10 cents. Getting out to close is usually hard, especially for less than 25 cents with more than a week to go.
The daily update:
As most of you know, the market dipped during the day, but recovered and then closed slightly down.
Our hypothetical position did pretty well because the market really didn't move much overall.
"our position": 1325-1300 put spread Value 1.02 net; short put delta at 9
the calls--1455-1480 call spread Value 1.27 net..short call delta at 10. By our rule, no adjustment is necessary.
Total value $2.29, versus our initial credit at $2.85, which leaves us in a moderate profit position thus far.
To the last poster, whichever position reached 16 would be moved away from the market price by a reasonable amount. I'm open to suggestions from other posters about what rules they might use, and what they would consider reasonable. It is better to have a plan before disaster strikes. Here's a question for everyone: in which direction will adjustments be easier to accomplish without it costing us a bundle, or will it matter??
As most of you know, the market dipped during the day, but recovered and then closed slightly down.
Our hypothetical position did pretty well because the market really didn't move much overall.
"our position": 1325-1300 put spread Value 1.02 net; short put delta at 9
the calls--1455-1480 call spread Value 1.27 net..short call delta at 10. By our rule, no adjustment is necessary.
Total value $2.29, versus our initial credit at $2.85, which leaves us in a moderate profit position thus far.
To the last poster, whichever position reached 16 would be moved away from the market price by a reasonable amount. I'm open to suggestions from other posters about what rules they might use, and what they would consider reasonable. It is better to have a plan before disaster strikes. Here's a question for everyone: in which direction will adjustments be easier to accomplish without it costing us a bundle, or will it matter??
umm.. one note is i've heard .. that its good not to say roll down your call position along with your put position if the put delta reaches the threshold to roll... partly because.. if you think about it .. your assumption of volatility was low.. and alot of times when markets move more then you predict one way you can get whip lashed by trying to contain the market by rolling both