HLF iron condor, weekly

N

nixodian

yesterday wednesday 31july, l entered 8 HLF iron condors, 70c 72.5c , 62.5p 60p @0.575, it was a bullish day after gd earnings. looking at the charts particularly weekly it looks most unlikely to exceed to call side. the deltas on call and put side were .228 and .184 at the time.
question is, how would you adjust to protect your profit? would you wait for it to go ITM, delta to go against you by ~0.12, wait for the premium to double on one side, long a butterfly to push the short side further out?
opinions :)
 
too many third order effects in a position like this. hedging will not protect you in the case of a run up/down.

i would hold or cut if the pain gets too strong.
 
If you're bullish why enter an IC? That doesn't make any sense.

This is a very dangerous position. Waiting for either side to go ITM is just plain nuts.
 
Quote from newwurldmn:

too many third order effects in a position like this. hedging will not protect you in the case of a run up/down.

i would hold or cut if the pain gets too strong.
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newwurldmn, interesting, what parameters do you use to measure pain getting too strong? for you to just get out?
 
It depends on the situation of the trade and my book overall.

But you can't hedge a position where the second order Greeks aren't stable
 
Quote from stevegee58:

If you're bullish why enter an IC? That doesn't make any sense.

This is a very dangerous position. Waiting for either side to go ITM is just plain nuts.
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stevegee58, l agree it is dangerous, l am not waiting for either side to go ITM
l am not bullish up to this Friday 2nd aug well for it to reach 70, feel more likely to touch the 62.5 though deltas didnt read it like that during the trade.
so how does an option trader, like yourself, manage the IC ? buy back the side if it has dropped by half? or if it has doubled?
 
Quote from newwurldmn:

It depends on the situation of the trade and my book overall.

But you can't hedge a position where the second order Greeks aren't stable
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what do you mean by "second order Greeks aren't stable"?
so if your book overall was looking shakey and the call side had doubled in premium the put side halved. just close the call side or whole thing or nothing?
 
Frankly I never liked ICs though I did have a journal here recently where I was trading them. I eventually gave them up and am working on high reward:risk directional trades instead.

To answer your question, you can have a look at the rules in my journal. In a nutshell, I rolled out whichever side was "threatened". I determined this with delta. I'd start with the short options at around delta=7. If either short option's delta went to 20 for calls or 25 for puts I'd roll out. Keep in mind I was doing these ICs on NDX and RUT both indexes. ICs on individual stocks are way more susceptible to adverse gap moves.
 
Quote from nixodian:

what do you mean by "second order Greeks aren't stable"?
so if your book overall was looking shakey and the call side had doubled in premium the put side halved. just close the call side or whole thing or nothing?
More...

spot delta is zero
Spot gamma is low

But as stock moves, spot gamma goes up. So you can't hedge it because the next dollar up has much more impact than if spot moves one dollar down.

it depends on the pricing but definitely the short call
 
Nixodian,

I have traded many IC and modified IC trades over the years and may be able to offer some advice. First, however, I need to know what the expiry is. Is it this week or next? It was not entirely clear from your post or title, and the duration matters to your decision making.

The next thing is for you to think about. You have 8 IC's and the spreads are 2.5 points. This means a potential maximum loss of $2000.00 if you do nothing and either side completely runs through past the longs at expiry. Obviously, you should not reveal your account balance to anyone or answer this online, but you need to ask yourself: Can I afford to take this loss easily? If your answer is yes, fine. If not, you should reduce size until comfortable.

One of the ideas often promoted by various online "authorities" is that you can make "adjustments" (roll up, roll out, size up, etc.)that will magically preserve your profits so that you cannot lose trading IC's. This is mostly nonsense! No option strategy is immune to market conditions.

Now, if you ask, can I keep losses in check or preserve gains, the answer is sometimes yes.

In general, you have quite a few choices, depending on what you think the market will do--
1)Right now you are fairly nicely positioned between the short strikes. I didn't check, but you may have a decent profit if the expiry is this week. In general, with options trades, the last few cents of profit is not worth the trouble. Lots of people recommend getting out with 80% of your potential profit and moving on. That is probably good advice most of the time.

2) Since your trade has been entered with deltas of about 20 or more, stevegee's advice needs to be modified for your situation. The doubling of premium necessitating closing might be a better approach. You could also use a delta of 35-40 as a guideline for this. I would absolutely not recommend letting any of the short options go into the money. If that happens, your losses will escalate rapidly. If your expiry is this week, you should be watching closely.

I am glad to see that you put on your IC after earnings. It is considerably safer to do that. I personally only put "IC like" positions on indexes like RUT, NDX and the SPX.

By the way, I never use a standard IC construction (with equal amounts of spreads and equal distances away from the price) anymore with indexes.
 
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