HowardCohodas Index Options Credit Spread Trading Journal

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Howard
I´m still trying to figure out what you are doing? You have a lot of people interested. Whether it will work in different market environments, we can only wait and see. Still I do not understand what you are doing?

1) Basically I get you are constantly invested?

2) You rollover the whole IRON CONDOR, including the side that may be losing, and calculating your return based on the total of both sides.

3) The Iron Condor you roll over is based on total capital earned I guess? Sort of around the 80% level, or so ( on both spreads? )

4) You use 60 day options.

5) You keep making references to Page 20 or some other reference, but I do not know what these are, or where you have them?

6) I find it an intriguing concept that since one side of an Iron Condor will be a winning side and the losing side may if time decay permits gain a bit as well, the idea of trading Iron Condors in a permanent rollover situation intriguing. How that plays out I don´t know. I can guess you would be tracking the idea of how much the Iron Condor is earning, before deciding to rollover the whole shebang. You must have some IF THREATENED decision point, but how you arrive at that I do not know, for rolling over, even when you do not yet have enough profit earned from the Iron Condor.

7) If you have some place you explain your thinking on this I would like to read it.
 
Quote from falconview:
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I'll answer more thoroughly in a day or so. I'm taking a friend to surgery just now.

Page 20 references the Pages of this thread for which there are hot links at the top and bottom of this page.

Second, I think much of the confusion centers around the idea of an Iron Condor as a unit. In my trading methods, it is never a unit as far as trade entry or trade management. Everything is managed from the point of view of a credit spread. Each credit spread must stand on its own.

The Iron Condor as an idea is only to understand that the companion credit spread can be entered without requiring additional capital.

The Iron Condor as a unit is used solely as a way of collecting all the credits earned while trading a particular series (index and expiration).
 
Quote from rew:

I presume that you've back tested this system against some of the more notorious crashes, notably in the fall of 2008 and March 2009, when it would be necessary to stop out of the bull put spreads. What sort of results do you get for those periods? Did you use actual option prices at those times (with high IV and wide bid/ask spreads) or estimates?
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I used a data set including 2005 through 2009. My method of backtesting is more complicated than normal practices to avoid "curve fitting."

More details as time permits.
 
Howard

I´m getting more out of your January summation, than I get out of your worksheet. ( I printed it out. )

Average loss per spread is 9.3%
Average loss per iron condor is 20.3%

1) Now, how are you choosing when to close a losing a credit spread? I presume it has something to do with the premium collected, plus commission cost and the index moving contrary to the direction you wanted? Do you record the index number at which you put the spread on to keep track of when you go from positive to negative returns?

2) I don´t recollect in my own forays into Iron Condors of having returns of 22.9%. Mind you I didn´t do rollovers either on a 60 day time frame. How are you getting that? Are you leaving out commission costs? I see the average loss is 20.3% of a losing Iron Condor. I´m trying to picture that in my mind, but can´t grasp what is happening here.
 
Howard

I took a look at the colored work sheet. I get glimmerings of the odd thing from it. But mostly it fits your mind set. I don´t translate the information showed into anything concrete and useful to me. I got more from your monthly summation.
 
Well I´m spending a lot of time between trades lately. So decided this morning after reading Howard´s summary for January options, to give it a whirl again.

Can´t make head nor tail out of his reasoning, or lack thereof. So looking at 60 day, or March options I sold a PUT spread for .60 cents.
With a 60 day option I went to a spread calculator. Just thinking of that right now, something wrong there, the calculator didn´t ask me for dates?
Anyway, with a March 555/550 at .60 cents premium. I figure by back engineering your monthly summation, that i will roll it over, or close it when the premium uses up 80% of Time Decay. Or goes the distance through favorable directional movement of the index. In other words if the PUT credit spread reachs .12 cents will close it out. On the other direction, if the premium increases from the .60 cents I got by 5% or gets to .65 cents, I will either close it, or roll it, or something? Haven´t got that part figured out yet?

Opened a seperate paper money account to try this. Being a BULL trend I´m not sure how this will handle, should the market reverse come February?
 
Hmmmn! Just had a lunch of Luncheon meat and onion. Wife and brother in law, took off for shopping across the border in Guatemala this morning. Rejuvenated by food, I started thinking something is wrong here?

When I sold the Vertical Put Credit Spread, the quote was for .40 cents premium. I put in a limit order and got .60 cents. All well and to the good. The other way though, if you had to buy it back was going to cost a $1.00 plus commissions if you wanted to close the spread. So I remember now, that when you CLOSE a credit spread it costs more than when you sell it. That is why people go for expiration in monthly trading or weekly. The cost is negative ( bigger loss ) in market maker spread and commission costs, if you close the trade.

Never having done a ROLLOVER before, I am assuming that when you rollover, you go from one sold spread to another sold credit spread and thus only pay a commission. Collecting more premium. Thus even now, this hands on excercise, teaches me something. There is a reason for the rollover. You want to sell the credit spread more than once, to build up premium credit, to offset the cost of buying back someday.

I wonder how you figure out how to buy back, when the market goes the wrong way and threatens you, if in CLOSING you are threatened and what the premium would be and which way it would have to be calculated in order in order to figure when to close. I doubt the .12 cents I figured on the SOLD credit spread would be accurate, as you would be buying back, which is much more costly?

The 60 day options I noticed also give you the opportunity to sell further out the money. I was 6 strikes in the OEX out. Which is roughly 6% of an index move. Mind you in 2010, there were 4 times in the first half of the year when the index moved 10% in a month. I guess I need to try a ROLLOVER and see how that works? Do you go from a SELL credit spread to another SELL credit spread is the question? If so, that would be okay then using a 6% out the money options. You could do it on a 10% wild move of the index.
 
Howard

Hmmn! Another dull day in the straight option buying. Not enough volatility.

So this morning I completed an Iron Condor for an experiment in the OEX. The spreads are 6% deviation away from the market on March, or 60 day options. Both sides credited .60 cents. When I look at the first one, yesterday it had a $1.00 cost to buy back. This morning it was a $1.20. Not sure what that means yet?
i believe the buy back cost if you wanted to close the spread this morning is a $1.20 on the other side as well, that I just completed.
From now on, I´m guessing from your posts that this is now a waiting game? Time decay is going to effect one side and what is it, intrinsic value the other side? Something like that. I kind of learn by hands on doing, so going to watch what happens with the index movement and the premium spread.
I make note that the average waiting time is 19 days for these things. This from your January summary. Got an extra paper trading account to learn this with.
 
You may know this, but when working with Thinkorswim you can retrieve the Probability of Touching from TOS via DDE. An example in Excel would be:

=TOS|PROB_OF_TOUCHING!'.V110219C50'

Brooks

P.S. Great thread!

...One of the questions that comes up frequently is the reliability of the probability of touching probability estimate...
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I've done credit spread and IC trading on these indexes, stocks & ETFs.

Much depends on WHEN the rise in IV occurs. It can be very detrimental when it goes up AFTER the trade has been started.

IV may stay the same or actually decrease if the market goes up, even strongly, but when it goes down markedly, IV can go through the roof.

Thinkorswim allows you to model IV changes in the Analysis tab. Try increasing IV by 10%+ on an existing credit spread or IC and P/L will go down dramatically.

You might try backtesting during the Fall months of 2008 (esp Sept & Oct) to see what can happen with RUT, SPX and NDX ICs when the market drops like a rock (ouch).

Brooks

[*]Some testing I have done indicates that the tools I use will accommodate higher volatility regimes. However this remains untested with real money.
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