Bread & Butter Iron Condors

Update time, again... (these are SPX spreads expiring in SEPT--3rd Friday morning, two weeks to go... I briefly considered rolling to OCT, but there are still two weeks to go. With one week to go, it would be much more tempting. )

Our total credit so far is $1608..

Our current position 7 put spreads in SPX 1380-1355 with a value now of $1.08 each* 700 or $756 against us.

Our 7 SPX call spreads are now 1470-1495 with a value of 1.49*700 or $1043. Our former net profit is now a loss of $191, which is modest, but unpleasant...

The short put delta is 9, and the short call delta is 13, so no adjustments are called for today.

If we had not increased in size our current credit would be MUCH smaller. We do have margin available to use, but should do so carefully of course. Running out of margin is TERRIBLE management of risk. I strongly support the notions of using only a modest amount to start with to give some flexibility. This position is dangerous, but could still be profitable if the market is quiet.

We could also have decided to just buy back a couple of the call spreads, partially biting the bullet, leaving the others in place and rolling up the puts. This would have reduced the upside risk quite a bit, and we could simply have used the put credits to finance the call repurchase.
 
Quote from Put_Master:

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.
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Unfortunately, there's a much larger margin requirement for selling Naked Puts, and one also has to be happy owning the stock in case of assignment. Neither of those conditions are good for me right now.

It's definitely easier to be sure of support areas versus resistance areas during Bull Markets.
And since the bias is up, the stock or ETF is moving away from your line in the sand, so your probabilities of success are much higher as well.

I also like selling Bull Put Spreads, versus buying Bull Call Spreads, because you don't have to close out the trade if you hold it until Expiration Friday.
Fewer commissions and less hassle. It just expires worthless and the margin is released into your account on Sunday.

Also, if you do want to close out the trade, you're Buying to Close, rather than Selling to Close as in a Bull Call Spread.
One can always buy something, but it's not always so easy to sell something!
:)
 
Quote from cdcaveman:

Yea you gotta prescription for a small account... I buy a lot of flys...
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Yeah. Don't sell vol on massive leverage (notional / account value). That way your small account won't become a zero account.


Selling vol is fine. Selling naked vol is fine too. But large drawdowns are a reality and the more leverage you have the more those drawdowns are magnified.

Once your account gets sufficiently wiped out you are done for good so there is some natural risk averisness to trading.
 
Quote from cactiman:
Unfortunately, there's a much larger margin requirement for selling Naked Puts, and one also has to be happy owning the stock in case of assignment. Neither of those conditions are good for me right now.
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I consider the "larger margin requirement" for selling puts, vs spreads as a positive. A good thing.
That's what keeps naked put sellers from over leveraging.
A naked put seller is unable to margin much more than 2 - 3 times his account value.
The average IC or put spread trader, is probably leveraged 8 - 10 times his account value. And if they are using stocks like APPL probably closer to 30 times their account value.
(Not that there is really any difference between being 8 times leveraged your account value or 30 times.)

Hence the reason spread traders can NOT even consider buying their stocks.
Hence the reason they MUST close for a loss.
Given the "choice" of buying your stock, which may only be down a small percentage, vs taking a total loss, wouldn't you rather have the CHOICE? I'm not suggesting one is better than the other, as it depends on how down you are, but isn't having the "choice" a good thing?
Spread traders have no "choce", due to their excessive leverage. Naked put sellers do have a choice,... thanks to their higher margin requirements.

It isn't stocks dropping that kills investors. It's stocks dropping while on "excessive leverage" that kills them. As it takes away the ability to CHOOSE, and the ability to wait for recovery. Once you lose the ability to choose, or to wait for recovery,... all that's left is to close for a loss. Perhaps a devasting loss.
Thus, I don't mind the higher margin requirements of a naked put.
It keeps me from leveraging more than 2 - 3 times my account value.... which is still plenty of leverage.

Plus, my "control of the trade" doesn't have to end, when the contract date expires,... as it does for IC and spread traders.
Not to mention, I can still sell my stock anytime I want to, after it's put to me. Assuming i have not closed it earlier.
However, I agree that if I'm closing a naked trade, I will wish it was hedged.
 
Quote from Put_Master:

I consider the "larger margin requirement" for selling puts, vs spreads as a positive. A good thing.
That's what keeps naked put sellers from over leveraging.
A naked put seller is unable to margin much more than 2 - 3 times his account value.
The average IC or put spread trader, is probably leveraged 8 - 10 times his account value. And if they are using stocks like APPL probably closer to 30 times their account value.
(Not that there is really any difference between being 8 times leveraged your account value or 30 times.)

Hence the reason spread traders can NOT even consider buying their stocks.
Hence the reason they MUST close for a loss.
Given the "choice" of buying your stock, which may only be down a small percentage, vs taking a total loss, wouldn't you rather have the CHOICE? I'm not suggesting one is better than the other, as it depends on how down you are, but isn't having the "choice" a good thing?
Spread traders have no "choce", due to their excessive leverage. Naked put sellers do have a choice,... thanks to their higher margin requirements.

It isn't stocks dropping that kills investors. It's stocks dropping while on "excessive leverage" that kills them. As it takes away the ability to CHOOSE, and the ability to wait for recovery. Once you lose the ability to choose, or to wait for recovery,... all that's left is to close for a loss. Perhaps a devasting loss.
Thus, I don't mind the higher margin requirements of a naked put.
It keeps me from leveraging more than 2 - 3 times my account value.... which is still plenty of leverage.
Plus, my "control of the trade" doesn't have to end, when the contract date expires,... as it does for IC and spread traders.
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This sounds like an interesting angle, but I don't quite understand your use of the term leverage.
As an example:
On April 26th I sold a January AAPL 600/595 Bull Put Spread for a credit of $257.00, with a Max Possible Loss of $243.00.
So I had to put up $243.00, was credited $257.00, and the combined total of $500.00 is now being held in Margin.
How does that leverage my account in a dangerous way?
:confused:
 
Quote from newwurldmn:

Yeah. Don't sell vol on massive leverage (notional / account value). That way your small account won't become a zero account.


Selling vol is fine. Selling naked vol is fine too. But large drawdowns are a reality and the more leverage you have the more those drawdowns are magnified.

Once your account gets sufficiently wiped out you are done for good so there is some natural risk averisness to trading.
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i get that... totally makes sense.. my thoughts are this.. say i have a 10 thousand dollar account... a 3-5 hundred dollar fly is 5 percent of my account.. thats all i can lose.. not a bad position size to me.. next thing to consider is... don't put a fly on in a correlated name in your next position.. basically if you have five percent in one fly on aapl.. and five percent in another fly on goog.. your really closer to 10 percent in your position size cause your concentrated to a certain degree because of the correlation between the two stocks.. that being said.. it is very hard to sell premium and make money on a small account... you can do buy over writes only on small priced tickers.. and or you can buy over write with itm calls against otm calls.. say bac itm against otm... with a decent time to expire.. not these two weeks before expire trades that have so much gamma in them they are impossible to manage..

as i drive around at work during the day .. i think about the many traps there are for small acount traders... you sit there and can't be happy making 20 bucks on a thousand... so you increase your risk to get larger dollar amount rewards.. and fuck yourself.. but hey i'm sure if i had a ton of money to trade with i'd have other bridges to cross.. if your not happy with where your at right now.. you'll never be happy in any place..
 
Quote from cactiman:

This sounds like an interesting angle, but I don't quite understand your use of the term leverage.
As an example:
On April 26th I sold a January AAPL 600/595 Bull Put Spread for a credit of $257.00, with a Max Possible Loss of $243.00.
So I had to put up $243.00, was credited $257.00, and the combined total of $500.00 is now being held in Margin.
How does that leverage my account in a dangerous way?
:confused:
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you obviously know your position size is 500 bucks.. Put master generally directs his overleveraging to people who don't know the problems with overleveraging via spreads.. you obviously "get it" if you have a 100,000 dollar speculative trading account.... meaning its not your retirement money.. i could see dropping 5 grand into a credit spread.. not much more.. at least not in one name... thats just me.. i've had a credit spread blow out before.. and i lost 5 hundred bucks thats it.. and i didn't have to take the stock 20 points lower..
 
Quote from cactiman:

This sounds like an interesting angle, but I don't quite understand your use of the term leverage.
As an example:
On April 26th I sold a January AAPL 600/595 Bull Put Spread for a credit of $257.00, with a Max Possible Loss of $243.00.
So I had to put up $243.00, was credited $257.00, and the combined total of $500.00 is now being held in Margin.
How does that leverage my account in a dangerous way?
:confused:
More...
Your margin requirement was only $500 per contract. But you leveraged the other $59,500 for the AAPL spread trade. Imagine if you sold more than one contract.
If you had selected a $40/35 spread instead, then your leverage would have been $3,500 per contract.
Just because you are not charged a margin fee each day, does not mean you are not on leverage. It's still real margin.
There is a difference between margin requirement of a trade and margin leverage.

In the AAPL example, if you don't have $60,000 in your account for each contract sold, you are using margin leverage for the difference.
That massive margin leverage is the reason spread traders MUST close a trade that trades even a penny below their upper strike.
Although most experienced spread traders will close it before it even touches that upper strike.
WHY?
Lets assume your account is all spread trades. If they all trade a mere penny below the lower strike, their account will be 100% wiped out.
And if it trades a mere penny below your upper strike, you can't afford to buy 95% of the stocks.
So your only choice is WHEN to close. If you wait until the stock is in the middle of your strikes, your account will lose 50 - 80% of it's value. Again, this assumes your account is all spreads or spread type strategies, like IC.

So what placed you in the position of potentially losing 50 - 100% of your account value, once a stock or index trades between your strike gaps? LEVERAGE.
That massive leverage you are using, is the reason you can NEVER even consider buying 95% of your stocks. Since you can't buy, you must close the trade. Once the stock trades inside your strike gaps, the only question remaining is, will you close the trade or trades, before you lose 50 - 100% of your account value, or after?
Lots of folks wait until they lose 100%,.... hoping their stock will recover.
A naked put seller can wait (hope) for recovery, as he can only leverage 2 - 3 times his account value. A massively margined spread trader can not.

(Hey, CD, don't blame me. He asked about leverage.)
 
Quote from cdcaveman:
No you don't have to close it if it blows the line.. you let it expire worthless and lose the five bills..
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If a stock drops slightly below your lower strike, and there is some theta left in the trade, it still pays to close the trade. Better to only lose 90 - 95% than 100%.
Only if the cost to close the trade exceeds your strike gap, is it better to just let it expire and lose 100%.
No point paying a commssion if you are already at 100%.
 
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