Changing the time value in a reverse iron condor

K

kmoney

I've been fiddling around with a reverse iron condor strategy and while I was doing that I had a thought (Dangerous I know).

I'm sure someone here will explain why I'm an idiot but it's better to be an idiot with money in my pockets than to be a broke idiot so I figured I'd post on here and see if I get any feedback.

Sell the wings two weeks out and buy the center of the reverse condor a month out. I figured this would basically increase my exposure to volatility thus making my condor more likely to be in the money. I would close out all positions as soon as my price target is hit or at the very latest at expiry of my two sold contracts.

My concern is that in a highly volatile market one of the wings could end up deep in the money and be exercised.

Is there any other reason this might be a bad strategy?

I appreciate the feedback.
 
Can you provide an example including what your expectation is for stock movement and change in Implied Vol and over what time period?

IMO, you need to tie an option strategy to expectations. Otherwise, it is too random.
 
I don't have an option chain handy, but I suspect what will happen with this double diagonal spread is that the nearer term sold-to-reduce-the-debit strikes will be less than the theta (not paid) by their being sold closer-to-expiration.

If you were buying a middle strike for $10, and selling a same-expiry further-from-market strike for $6 (to make a vertical/half-condor), the selling of that same strike closer to expiry might only get you $2, and on the date of its expiration, that same strike of the middle strike's expiry might only get you $3.

So, the position costs you $10-$6 for (half of) the IC,
while the double-diagonal costs you $10-$2-$3.

There are lots of market ebb-n-flow effects in there too, which may make the $1 "penalty" worthwhile. But that's up to you.
 
Have you backtested it? I think I may have backtested this before because I have backtested lots of things, I think you would be better off with a double calendar, better risk reward.
 
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