Credit spreads (Iron condor)

A

ADLE

Hi,
Sorry for newbie question.
How mush money I should have in my margin account to be able to sell credit spreads (iron condor) on SPY or IWM?

For example SPY today at 133
I sell February 10 calls 143 and buy calls of 148
and I sell February 10 puts 124 and buy 119

How much money I should have on my margin account to be able to do this transaction?

Thank you
 
With IB I think you need $2000+ to open a position and your example will use up $500 worth of margin.

NOTE: Each leg requires $500.00 worth of margin and combined both legs still only $500.00, I don't think the credit received is subtracted from the $500.00.
 
sorry, didn't notice that it's margin account. just check your broker for the spread requirements as you have 2 spreads here.
 
To original poster - iron condors are a type of position where the risk/reward is NOT in your favor. For instance, if you experience the max loss on one side of your condor, that could cost you $1000 per contract. However, if you are lucky, you will only be bringing in $200 in income for the entire condor. So, you can do the math here, you are risking $1000 for $200 in profit or 1:5 risk reward. If you are in the dark as to how to calculate the margin and minimum dollar amount needed, I am going to piss in the wind and guess you have no idea about the risk management of an iron condor. I encourage you to perhaps paper trade for 6 months or so before you actually jump off the diving board.

BTW - IB margins only one side of a condor and subtracts income, so you are looking at (for SPY) $1000 - premium times number of contracts for margin reqs. Not sure about minimum account size, though.
 
Quote from Div_Arb:

For instance, if you experience the max loss on one side of your condor, that could cost you $1000 per contract. However, if you are lucky, you will only be bringing in $200 in income for the entire condor. So, you can do the math here, you are risking $1000 for $200 in profit or 1:5 risk reward.
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Max loss is $500 minus credit.


Quote from Div_Arb:


BTW - IB margins only one side of a condor and subtracts income, so you are looking at (for SPY) $1000 - premium times number of contracts for margin reqs. Not sure about minimum account size, though.
More...

I'm 90% sure that IB doesn't subtract credit for margin requirements. One leg would require $500 margin and both legs still $500 margin. And I believe he will need at least $2000 in his account to open the position, if its Interactive Brokers.
 
Quote from Div_Arb:

To original poster - iron condors are a type of position where the risk/reward is NOT in your favor. For instance, if you experience the max loss on one side of your condor, that could cost you $1000 per contract. However, if you are lucky, you will only be bringing in $200 in income for the entire condor. So, you can do the math here, you are risking $1000 for $200 in profit or 1:5 risk reward. If you are in the dark as to how to calculate the margin and minimum dollar amount needed, I am going to piss in the wind and guess you have no idea about the risk management of an iron condor. I encourage you to perhaps paper trade for 6 months or so before you actually jump off the diving board.

BTW - IB margins only one side of a condor and subtracts income, so you are looking at (for SPY) $1000 - premium times number of contracts for margin reqs. Not sure about minimum account size, though.
More...

Original Poster:

1. If you are a beginner I would highly recommend that you start playing options with condors. They are high prob. And you will learn more about options playing with them while your prob of success is higher, and the likelyhood of cutting yourself is lower. But you need to learn how to manage risk/reward. And if you are cut indeed the cut can hurt you.

IMO, IWM is a good index to use for a beginner.

2.If the distance between the short and the long of each spread comprising the condor are not equal, I believe IB will consider them as two independent spreads even if we know one of them will be worthless. This remark is applicable for Reg T margining. Out of pocket money is = difference of between strikes - credit.
 
Quote from riskfreetrading:

Original Poster:

1. If you are a beginner I would highly recommend that you start playing options with condors. They are high prob. And you will learn more about options playing with them while your prob of success is higher
More...

It hasn't been a cake walk for SPY Iron Condors. June/July looked OK, but the rest of the year has been hell. Its been a buyers market on the SPY.

spy

SPY 1 year chart
 
Quote from forex-forex:

It hasn't been a cake walk for SPY Iron Condors. June/July looked OK, but the rest of the year has been hell. Its been a buyers market on the SPY.

spy

SPY 1 year chart
More...

Ask the newbies who bought calls what happened to them.
There is a guy who turn 7k to 52K, and went back to a smaller account than started with. His story is on ET somewhere. I understand that he bought calls.

For those who did not manage condors (or do not know how to manage condors), it must has been hell indeed. For those who do, it is different. A beginner needs to learn how to manage risk/reward ratio (condor's stinks). Plus one should not hold condors only, one should hold other positions that negatively correlate to condors. Anyone can start a condor. It is what you do later (should problem arise) which can make a difference.

In additon, one does not have an edge just because he buys or sells premium. One still need an edge that allows one to run. A newbie is better learning to walk, and running might come later.
 
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