Entering Iron Condor option with only 15 days before expiration
- Thread starter Squiggle
- Start date
It really depends what you are looking for... Right now you are looking at a 60% prob of a 200% payoff. That is not the strategy I use but in theory -assuming your prob is correct- you would come out on top if you repeat that trade over and over...
To answer your basic question, yes one can do iron condors with short time remaining, I do it quite often although normally inside 5 days of expiration. When you do that, normally you would look for a small payoff with very high probability. Ex: 10% payoff with 95% prob... So I guess its a trading style preference rather than a definite no-way.
You gotta ask, high prob/low payoff OR low prob/high payoff... Its a personnal thing
To answer your basic question, yes one can do iron condors with short time remaining, I do it quite often although normally inside 5 days of expiration. When you do that, normally you would look for a small payoff with very high probability. Ex: 10% payoff with 95% prob... So I guess its a trading style preference rather than a definite no-way.
You gotta ask, high prob/low payoff OR low prob/high payoff... Its a personnal thing
1) Negative gamma increases as time to expiration decreases. Thus, if underlying runs against you, losses are significantly larger when trading near-term options than further-term options. That's the biggest risk.
I'm not referring to the loss at expiration, but the loss when time remains.
2) Obviously time decay is more rapid for near-term options. That represents your reward for taking the risk of negative gamma.
You must be certain you understand and are willing to live with that risk and reward.
3) I don't know how you calculate your possible profits, but you cannot make 200%.
The cash at risk is the margin requirement, and your profit is not going to be twice that amount. On a 10-point IC, you must collect $6.67, risking only $3.33 to earn 200%. Perhaps you were referring to an annualized return?
4) 60% probability ignores all those times that you close or adjust the trade prior to expiration. That 60% number is either an illusion or you never plan to adjust.
It's your decision. There are pros and cons. I avoid these trades, but I'm more conservative than you are.
Mark
http://blog.mdwoptions.com/
Put just one on, work through it and get the feel. Repeat it
for a number of expiring cycles. Different person has different
styles and different talents. Trading is not a one size fits all thing.
The real answer will come from inside yourself.
for a number of expiring cycles. Different person has different
styles and different talents. Trading is not a one size fits all thing.
The real answer will come from inside yourself.