Bread & Butter Iron Condors
- Thread starter cactiman
- Start date
OK, let's say the market drops by 25 points relatively quickly, say within two days. We will likely reach our threshold of 16 delta for the puts and our calls wouldn't be worth much. If we don't move the calls, as you suggest, what would you do?? Propose a possible "getting out of trouble trade", or would you wait longer?
What I've heard that makes the most sense to me is.. close the call spread when its 80 percent of its potential profit.. roll down the put spread... in such a way that you can still make 80 percent of your original credit... so you'll have to take margin released from call spread and use it to sell more put spreads...so roll down and +-1.5 times bigger.... take the full risk of the call spread off. Use half that to make 80 percent of your original credit by rolling ng down in puts.. wide strikes spreads are more manageable from my understanding...
cd,
buying back the call spreads won't actually release margin, because the margin applied to an IC will be the same as the put spread OR the call spread side, but the sides are not added together.
Otherwise, you would buy back the put spread, and roll it down, and also increase size at the same time, so as an example, we might effectively change out 1325-1300 spread (5 spreads), to something like a 1300-1275 spread, but make it 8 spreads this time which would increase our margin requirements to $20,000. Is my understanding of your idea basically correct?
Now for a market update: (closing prices)
The SPX declined again today, but only by a small amount once again. This is a nice state of affairs for an IC..
Put side... increased a little to $1.07-- short put delta= 10
Call side decreased to $0.98--short call delta=9
Net is $2.05, for a moderate profit of $0.80 so far on our net credit of $2.85.
No adjustment needed so far.
So far no takers on which side is easier or less costly to adjust....
buying back the call spreads won't actually release margin, because the margin applied to an IC will be the same as the put spread OR the call spread side, but the sides are not added together.
Otherwise, you would buy back the put spread, and roll it down, and also increase size at the same time, so as an example, we might effectively change out 1325-1300 spread (5 spreads), to something like a 1300-1275 spread, but make it 8 spreads this time which would increase our margin requirements to $20,000. Is my understanding of your idea basically correct?
Now for a market update: (closing prices)
The SPX declined again today, but only by a small amount once again. This is a nice state of affairs for an IC..
Put side... increased a little to $1.07-- short put delta= 10
Call side decreased to $0.98--short call delta=9
Net is $2.05, for a moderate profit of $0.80 so far on our net credit of $2.85.
No adjustment needed so far.
So far no takers on which side is easier or less costly to adjust....
Now for our daily update:
A big move day, up 28+ points on the SPX!
Now our position doesn't look so great...
Put spreads 1325-1300-- now worth $0.33 short delta 4
Call spreads 1455-1480-- now worth $3.52 short delta 25
Net position $3.85, for a unrealized $1.00 loss.
Now that the short calls are at 25, we should be adjusting. With a real position, it would have been done during the day today. I'll wait a few hours to hear suggestions, and am curious still about the question I posed yesterday...
A big move day, up 28+ points on the SPX!
Now our position doesn't look so great...
Put spreads 1325-1300-- now worth $0.33 short delta 4
Call spreads 1455-1480-- now worth $3.52 short delta 25
Net position $3.85, for a unrealized $1.00 loss.
Now that the short calls are at 25, we should be adjusting. With a real position, it would have been done during the day today. I'll wait a few hours to hear suggestions, and am curious still about the question I posed yesterday...
Hi John,
You're question was what was easier to adjust, calls or puts? Its the calls. This iron condor trade is -vega. So if the same move were to occur on the downside, you would really be in trouble. Your whole day step line would be pushed much lower. If you have TOS, add/subtract vol to the trade to see how this affects this trade.
As for this trade, this is why new trades entered so close to expiration can blow up on you. I'm sure many iron condor trades are in big trouble after a move like this and why you should be mostly out of your SEPT trades and in a safe spot at this time with major news announcements. Any trade you make now will be to lock in losses. You could wait until late Friday to make another trade.
I was listening to "Tastytrade" the other AM where they had done a 31 month look back test on that exact question. I don't remember the exact data points except that the best move was to roll the winning side UP(or down...in this case it would be the put side up) to increase the credit and not touch the losing side.
The caveat here is they were NOT discussing 25 pt wide IC's. I have been CRUSHED by 25pt spreads. Simply put when they go against you in a big way (especially in the SPX) you don't stand a chance. I seldom even do 10 pt spreads. With only 2 weeks left you really can't roll up for much of a credit anyway. There is a very high probability of the short call strike to be touched, but still a reasonably probability of ending OTM at expiration. Given the action over the last 22 trading days I would be inclined to let it ride. Much easier said on a sim trade than a real one.
The caveat here is they were NOT discussing 25 pt wide IC's. I have been CRUSHED by 25pt spreads. Simply put when they go against you in a big way (especially in the SPX) you don't stand a chance. I seldom even do 10 pt spreads. With only 2 weeks left you really can't roll up for much of a credit anyway. There is a very high probability of the short call strike to be touched, but still a reasonably probability of ending OTM at expiration. Given the action over the last 22 trading days I would be inclined to let it ride. Much easier said on a sim trade than a real one.
Hypothetical question
Am I correct in stating that if one were to invest 100% of their account in a strategy of IC, on a month to month or whatever basis, and if there were a severe up swing or down swing in the stock or index, such that it went outside one of your spread gaps, because there was no adjustment made, that your account would lose 50% of it's value..... excluding your credits earned.
Am I correct in stating that if one were to invest 100% of their account in a strategy of IC, on a month to month or whatever basis, and if there were a severe up swing or down swing in the stock or index, such that it went outside one of your spread gaps, because there was no adjustment made, that your account would lose 50% of it's value..... excluding your credits earned.
OK, here's the adjustment I'm going to make-- and it will be somewhat controversial, I'm sure, but feel free to shoot at the choice, it's not real money!
I'm going to close the put spread which is worth 63 cents, and roll it up to 1380-1355 which will yield a credit of $1.83 (we're assuming a midpoint fill-- highly optimistic I'm sure). We have two weeks to go, so we'll also increase the size to 7 spreads so we'll close 5 and open 7 spreads increasing our margin to 700*25 or $17,500 which will increase the risk, but not use up all our margin by any means.
This will bring in $1.23 * 500 or $615+ 1.83 *200 which is $369 for a total of $984 in additional credit. Our original credit was $1425, so our new total of credits is $2409.
We have a big problem on the call side, of course. Let's move those up, too, but maybe not the full 28 point move, while increasing our size. We'll need to close the dangerous 1455's which are only 23 points out of the money, and move the whole position up. So we'll close the 1455-1480 out at 500* $3.52, which will cost us $1760, but open a 1470-1495 with 7 spreads... this will yield 700*1.37 or $959, so the net reduction in credit on the call side is $801.
Our new position is--
1380-1355 puts *7
1470-1495 calls * 7, and our margin is now 17500
Our net credit so far is $1608. I'm neglecting slippage and commissions, which would reduce this by a fair bit.
Comments on this set of tactics??? It is probably fairly typical of a lot of intermediate traders, I would think.
I'm going to close the put spread which is worth 63 cents, and roll it up to 1380-1355 which will yield a credit of $1.83 (we're assuming a midpoint fill-- highly optimistic I'm sure). We have two weeks to go, so we'll also increase the size to 7 spreads so we'll close 5 and open 7 spreads increasing our margin to 700*25 or $17,500 which will increase the risk, but not use up all our margin by any means.
This will bring in $1.23 * 500 or $615+ 1.83 *200 which is $369 for a total of $984 in additional credit. Our original credit was $1425, so our new total of credits is $2409.
We have a big problem on the call side, of course. Let's move those up, too, but maybe not the full 28 point move, while increasing our size. We'll need to close the dangerous 1455's which are only 23 points out of the money, and move the whole position up. So we'll close the 1455-1480 out at 500* $3.52, which will cost us $1760, but open a 1470-1495 with 7 spreads... this will yield 700*1.37 or $959, so the net reduction in credit on the call side is $801.
Our new position is--
1380-1355 puts *7
1470-1495 calls * 7, and our margin is now 17500
Our net credit so far is $1608. I'm neglecting slippage and commissions, which would reduce this by a fair bit.
Comments on this set of tactics??? It is probably fairly typical of a lot of intermediate traders, I would think.
An update on my SPY September Iron Condors:
The upper legs are/were 141/142, 143/144, 144/145, and 145/146.
So I've had to close out the first two for losses (-$17 & -$23), and am now worrying about the last two!
Therein lies the argument against "non-directional" trades.
Even though SPY moves slower than an individual stock, it has had a direction for the last 3 years - Up!
So "hoping" it goes sideways for a few months to make some extra premium via Iron Condors is dangerous.
Trying to call Tops during an uptrend is a low percentage trade.
Simple Bull Put Spreads would have paid less than the ICs, but I'd have scored 100% instead of taking losses!
The upper legs are/were 141/142, 143/144, 144/145, and 145/146.
So I've had to close out the first two for losses (-$17 & -$23), and am now worrying about the last two!
Therein lies the argument against "non-directional" trades.
Even though SPY moves slower than an individual stock, it has had a direction for the last 3 years - Up!
So "hoping" it goes sideways for a few months to make some extra premium via Iron Condors is dangerous.
Trying to call Tops during an uptrend is a low percentage trade.
Simple Bull Put Spreads would have paid less than the ICs, but I'd have scored 100% instead of taking losses!