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Iron Condor Money Management
- Thread starter avenue
- Start date
Quote from avenue:
Can anyone give me any advice on the best way to protect your iron condor positions from getting killed. Do you look at getting out of your position as the underlying touches your short strike? Thanks in advance.
You should have an exit plan before you enter the position, the best exit plan is to hold to expiration. Hopefully the stock will retrace the other direction and then time decay will start to work for you.
Do you have more details of your IC? I assume it expires in December.
There are different ways of managing IC's. Generally speaking they don't have great risk/reward ratios - usually looking at 30% or worse return but the trade off is a high probability trade. Having said that, it's important you don't let them get out of control. One method you could use is to place your IC shorts at a delta of 10 with an expiry of 25 to 45 days and a 5 to 10 point strike separation. If the underlying (usually an index, to avoid gaps) moves within 10 points of your shorts then adjust by closing out the bad side and rolling it up to the next short delta of 10, assuming there's enough premium to be had. Another method is to buy back half the losing spread and wait. Or you could roll the whole IC up/down, depending on what the underlying is doing. There are lots of choices and often they depend on your view of the underlying and what rr you want.Quote from avenue:
Can anyone give me any advice on the best way to protect your iron condor positions from getting killed. Do you look at getting out of your position as the underlying touches your short strike? Thanks in advance.
I'm sure others will chip in with some useful advice.
Best
daddy's boy
Quote from forex-forex:
You should have an exit plan before you enter the position, the best exit plan is to hold to expiration. Hopefully the stock will retrace the other direction and then time decay will start to work for you.
Do you have more details of your IC? I assume it expires in December.
Thanks for the response forex....actually I don't have a current position in the Decembers but have been back testing an IC strategy on the SPX over the past few years and I ran my tests all the way until expiration. While I had a high accuracy of the underlying closing in my predicted range over the period....I had those months where I just got killed and took the max loss....If I was trading this live I want to have a exit strategy for when the underlying gets close to my shorts where I can make adjustments accordingly
Quote from avenue:
Can anyone give me any advice on the best way to protect your iron condor positions from getting killed. Do you look at getting out of your position as the underlying touches your short strike? Thanks in advance.
Another way of managing them is to not overleverage your account. So rather taking a big position and then sweating everytime the underlying threatens your short strike, you size your positions so that you can take a max loss on any given IC and still be within your risk parameters. The logic behind such approach is that the volatility that took the underlying outside your short strikes may put it back in thus adjustments don't make sense.
I'm not saying this is the best way to trade them or even that it is superior to the one presented by daddy's, but it is one of the ways and it is up to you to decide which way suits you better.
Quote from avenue:
Thanks for the response forex....actually I don't have a current position in the Decembers but have been back testing an IC strategy on the SPX over the past few years and I ran my tests all the way until expiration. While I had a high accuracy of the underlying closing in my predicted range over the period....I had those months where I just got killed and took the max loss....If I was trading this live I want to have a exit strategy for when the underlying gets close to my shorts where I can make adjustments accordingly
One thing you have to consider is that when you introduce adjustments to a backtested strategy, which may have held the ICs to expiry, you change the whole probability profile, so to speak, so your win/loss ratio changes. That is, you adjust trades that would have otherwise moved back in your favour.
Quote from daddy'sboy:
There are different ways of managing IC's. Generally speaking they don't have great risk/reward ratios - usually looking at 30% or worse return but the trade off is a high probability trade. Having said that, it's important you don't let them get out of control. One method you could use is to place your IC shorts at a delta of 10 with an expiry of 25 to 45 days and a 5 to 10 point strike separation. If the underlying (usually an index, to avoid gaps) moves within 10 points of your shorts then adjust by closing out the bad side and rolling it up to the next short delta of 10, assuming there's enough premium to be had. Another method is to buy back half the losing spread and wait. Or you could roll the whole IC up/down, depending on what the underlying is doing. There are lots of choices and often they depend on your view of the underlying and what rr you want.
I'm sure others will chip in with some useful advice.
Best
daddy's boy
Thanks for the info...It sounds to me like you are backing into your short strikes by the delta at the time of the trade and taking an even 1:1 ratio of calls and puts. I have been testing it a little different....I get where I think my support and resistance will be for the period (usually 30 days) and adjust my position size of calls and puts to make my Delta neutral....do you have any suggestions on how you would adjust this as it moves within 10 points of your short strike.
Quote from MTE:
One thing you have to consider is that when you indtroduce adjustments to your backtested strategy you change the whole probability profile, so to speak, so your win/loss ratio changes. That is, you adjust trades that would have otherwise moved back in your favour.
Thanks MTE....I have thought of that and I realize that I might lose more times if I adjust my position when it touches or gets close to my short strike, because the probability is higher of it touching that price then actually closing above or below it for the period. But on the other hand I would not ever take a total loss of the whole amount either. I am just wanting to know a good rule of thumb to use and to test and see if saving money on the total losses and losing some on some trades that would have been profitable would help my system as a whole.
I think the common theme to managing ICs is that you can't really "manage" ICs. Once your short strike is breached, your options become very limited and your losses add up quickly. There are many discussions about this on the SPX Credit Trader thread.
I also recommend watching all of Dan Sheridan's webcasts here:
http://www.cboe.com/LearnCenter/webcast/archive.aspx
He talks about some adjustment ideas for ICs (and many other strategies). His thoughts are that if your shorts are breached, you get out.
Good luck.
I also recommend watching all of Dan Sheridan's webcasts here:
http://www.cboe.com/LearnCenter/webcast/archive.aspx
He talks about some adjustment ideas for ICs (and many other strategies). His thoughts are that if your shorts are breached, you get out.
Good luck.
Quote from spreadn00b:
I think the common theme to managing ICs is that you can't really "manage" ICs. Once your short strike is breached, your options become very limited and your losses add up quickly. There are many discussions about this on the SPX Credit Trader thread.
I also recommend watching all of Dan Sheridan's webcasts here:
http://www.cboe.com/LearnCenter/webcast/archive.aspx
He talks about some adjustment ideas for ICs (and many other strategies). His thoughts are that if your shorts are breached, you get out.
Good luck.
agree !