iron condor on sp500 futures option help

Quote from dipper17:

1) Thats fine and vols are pretty pumped now so you can go that far out in distace from the at the money right now.

2) Its a bad idea to assume it will take a lot of time and volatility will be PUMPED higher a lot higher even if we drop 100 points. Mean while your margin is exploding as this happens. Time decay wont mean a whole heck of a lot if we tumble 10 points in the first 10 days of the options cycle.

3) You may or may not recieve the same credit, that would depend on time and volatility. Mean while you'd have taken a HUGE loss on the first one to get it back and roll.
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good points. One question that noone seem to able to answer me is why write options on the spx when you could write options on the sp500 futures instead for a lot less margin.

This will never work if you were to write the option on spx directly. A $1,350 credit:

Sell -10 SPX JUN 2008 950 Put (.SXBRJ) $2.70 ($2,700.00)
Buy 10 SPX JUN 2008 850 Put (.SPXRJ) $1.35 $1,350.00

would cost you almost $100k in requirement.
 
Quote from newguy05:

good points. One question that noone seem to able to answer me is why write options on the spx when you could write options on the sp500 futures instead for a lot less margin.

This will never work if you were to write the option on spx directly. A $1,350 credit:

Sell -10 SPX JUN 2008 950 Put (.SXBRJ) $2.70 ($2,700.00)
Buy 10 SPX JUN 2008 850 Put (.SPXRJ) $1.35 $1,350.00

would cost you almost $100k in requirement.
More...

Having never traded any options on futures (just on indexes like SPX, SPY, etc.) I may be off base here so correct me if I am wrong. Does it matter that much what the margin requirement is when your risk doesn't change? I understand you want a lower margin so you can possibly take larger positions, take position in other instruments, make better use of your investment capital, etc. My point is, you are taking in a credit of $1350 and risking a loss of $98650 no matter what your margin requirement is when you put on the position.
 
Quote from newguy05:


Yes blackswan, picking up pennies in front of a steamroller etc... But just speak common sense, what are the chances the sp500 will drop to 925 from 1350 by Jun expiration when the market is already this beatup.
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So you Condor guys can see what you're in for, here are the monthly SPX changes for the last 15 years. Note that they are not SET values, just the Friday to Friday closes. Also note that the intramonth extremes may be much more than these closes. Moves higher than +5% are blue, -5% are red.

Expiration to expiration changes (at Close) for SP-500

Start 19930521 Price: 445.84

19930618, 443.68, %Chg: -0.48

19930716, 445.75, %Chg: 0.47

19930820, 456.16, %Chg: 2.34

19930917, 458.83, %Chg: 0.59

19931015, 469.50, %Chg: 2.33

19931119, 462.60, %Chg: -1.47

19931217, 466.38, %Chg: 0.82

19940121, 474.72, %Chg: 1.79

19940218, 467.69, %Chg: -1.48

19940318, 471.06, %Chg: 0.72

19940415, 446.18, %Chg: -5.28

19940520, 454.92, %Chg: 1.96

19940617, 458.45, %Chg: 0.78

19940715, 454.16, %Chg: -0.94

19940819, 463.68, %Chg: 2.10

19940916, 471.19, %Chg: 1.62

19941021, 464.89, %Chg: -1.34

19941118, 461.47, %Chg: -0.74

19941216, 458.80, %Chg: -0.58

19950120, 464.78, %Chg: 1.30

19950217, 481.97, %Chg: 3.70

19950317, 495.52, %Chg: 2.81

19950421, 508.49, %Chg: 2.62

19950519, 519.19, %Chg: 2.10

19950616, 539.83, %Chg: 3.98

19950721, 553.62, %Chg: 2.55

19950818, 559.21, %Chg: 1.01

19950915, 583.35, %Chg: 4.32

19951020, 587.46, %Chg: 0.70

19951117, 600.07, %Chg: 2.15

19951215, 616.34, %Chg: 2.71

19960119, 611.83, %Chg: -0.73

19960216, 647.98, %Chg: 5.91

19960315, 641.43, %Chg: -1.01

19960419, 645.07, %Chg: 0.57

19960517, 668.91, %Chg: 3.70

19960621, 666.84, %Chg: -0.31

19960719, 638.73, %Chg: -4.22

19960816, 665.21, %Chg: 4.15

19960920, 687.02, %Chg: 3.28

19961018, 710.82, %Chg: 3.46

19961115, 737.62, %Chg: 3.77

19961220, 748.87, %Chg: 1.53

19970117, 776.17, %Chg: 3.65

19970221, 801.77, %Chg: 3.30

19970321, 784.10, %Chg: -2.20

19970418, 766.34, %Chg: -2.27

19970516, 829.75, %Chg: 8.27

19970620, 898.70, %Chg: 8.31

19970718, 915.30, %Chg: 1.85

19970815, 900.81, %Chg: -1.58

19970919, 950.51, %Chg: 5.52

19971017, 944.16, %Chg: -0.67

19971121, 963.09, %Chg: 2.00

19971219, 946.78, %Chg: -1.69

19980116, 961.51, %Chg: 1.56

19980220, 1,034.21, %Chg: 7.56

19980320, 1,099.16, %Chg: 6.28

19980417, 1,122.72, %Chg: 2.14

19980515, 1,108.73, %Chg: -1.25

19980619, 1,100.65, %Chg: -0.73

19980717, 1,186.75, %Chg: 7.82

19980821, 1,081.24, %Chg: -8.89

19980918, 1,020.09, %Chg: -5.66

19981016, 1,056.42, %Chg: 3.56

19981120, 1,163.55, %Chg: 10.14

19981218, 1,188.03, %Chg: 2.10

19990115, 1,243.26, %Chg: 4.65

19990219, 1,239.22, %Chg: -0.32

19990319, 1,299.29, %Chg: 4.85

19990416, 1,319.00, %Chg: 1.52

19990521, 1,330.29, %Chg: 0.86

19990618, 1,342.97, %Chg: 0.95

19990716, 1,418.78, %Chg: 5.64

19990820, 1,336.61, %Chg: -5.79

19990917, 1,335.42, %Chg: -0.09

19991015, 1,247.41, %Chg: -6.59

19991119, 1,422.00, %Chg: 14.00

19991217, 1,421.03, %Chg: -0.07

20000121, 1,441.36, %Chg: 1.43

20000218, 1,346.09, %Chg: -6.61

20000317, 1,464.47, %Chg: 8.79

20000420, 1,434.54, %Chg: -2.04

20000519, 1,406.95, %Chg: -1.92

20000616, 1,464.46, %Chg: 4.09

20000721, 1,480.19, %Chg: 1.07

20000818, 1,491.72, %Chg: 0.78

20000915, 1,465.81, %Chg: -1.74

20001020, 1,396.93, %Chg: -4.70

20001117, 1,367.72, %Chg: -2.09

20001215, 1,312.15, %Chg: -4.06

20010119, 1,342.54, %Chg: 2.32

20010216, 1,301.53, %Chg: -3.05

20010316, 1,150.50, %Chg: -11.60

20010420, 1,242.98, %Chg: 8.04

20010518, 1,291.96, %Chg: 3.94

20010615, 1,214.36, %Chg: -6.01

20010720, 1,210.85, %Chg: -0.29

20010817, 1,161.97, %Chg: -4.04

20010921, 965.80, %Chg: -16.88

20011019, 1,073.48, %Chg: 11.15

20011116, 1,138.65, %Chg: 6.07

20011221, 1,144.89, %Chg: 0.55

20020118, 1,127.58, %Chg: -1.51

20020215, 1,104.18, %Chg: -2.08

20020315, 1,166.16, %Chg: 5.61

20020419, 1,125.17, %Chg: -3.51

20020517, 1,106.59, %Chg: -1.65

20020621, 989.14, %Chg: -10.61

20020719, 847.75, %Chg: -14.29

20020816, 928.77, %Chg: 9.56

20020920, 845.39, %Chg: -8.98

20021018, 884.39, %Chg: 4.61

20021115, 909.83, %Chg: 2.88

20021220, 895.76, %Chg: -1.55

20030117, 901.78, %Chg: 0.67

20030221, 848.17, %Chg: -5.94

20030321, 895.90, %Chg: 5.63

20030417, 893.58, %Chg: -0.26

20030516, 944.30, %Chg: 5.68

20030620, 995.69, %Chg: 5.44

20030718, 993.32, %Chg: -0.24

20030815, 990.67, %Chg: -0.27

20030919, 1,036.30, %Chg: 4.61

20031017, 1,039.32, %Chg: 0.29

20031121, 1,035.28, %Chg: -0.39

20031219, 1,088.66, %Chg: 5.16

20040116, 1,139.83, %Chg: 4.70

20040220, 1,144.11, %Chg: 0.38

20040319, 1,109.78, %Chg: -3.00

20040416, 1,134.61, %Chg: 2.24

20040521, 1,093.56, %Chg: -3.62

20040618, 1,135.02, %Chg: 3.79

20040716, 1,101.39, %Chg: -2.96

20040820, 1,098.35, %Chg: -0.28

20040917, 1,128.55, %Chg: 2.75

20041015, 1,108.20, %Chg: -1.80

20041119, 1,170.34, %Chg: 5.61

20041217, 1,194.20, %Chg: 2.04

20050121, 1,167.87, %Chg: -2.20

20050218, 1,201.59, %Chg: 2.89

20050318, 1,189.65, %Chg: -0.99

20050415, 1,142.62, %Chg: -3.95

20050520, 1,189.28, %Chg: 4.08

20050617, 1,216.96, %Chg: 2.33

20050715, 1,227.92, %Chg: 0.90

20050819, 1,219.71, %Chg: -0.67

20050916, 1,237.91, %Chg: 1.49

20051021, 1,179.59, %Chg: -4.71

20051118, 1,248.27, %Chg: 5.82

20051216, 1,267.32, %Chg: 1.53

20060120, 1,261.49, %Chg: -0.46

20060217, 1,287.24, %Chg: 2.04

20060317, 1,307.25, %Chg: 1.55

20060421, 1,311.28, %Chg: 0.31

20060519, 1,267.03, %Chg: -3.37

20060616, 1,251.54, %Chg: -1.22

20060721, 1,240.29, %Chg: -0.90

20060818, 1,302.30, %Chg: 5.00

20060915, 1,319.87, %Chg: 1.35

20061020, 1,368.60, %Chg: 3.69

20061117, 1,401.20, %Chg: 2.38

20061215, 1,427.09, %Chg: 1.85

20070119, 1,430.50, %Chg: 0.24

20070216, 1,455.54, %Chg: 1.75

20070316, 1,386.95, %Chg: -4.71

20070420, 1,484.35, %Chg: 7.02

20070518, 1,522.75, %Chg: 2.59

20070615, 1,532.91, %Chg: 0.67

20070720, 1,534.10, %Chg: 0.08

20070817, 1,445.94, %Chg: -5.75

20070921, 1,525.75, %Chg: 5.52

20071019, 1,500.63, %Chg: -1.65

20071116, 1,458.74, %Chg: -2.79

20071221, 1,484.46, %Chg: 1.76

20080118, 1,325.19, %Chg: -10.73

20080215, 1,349.99, %Chg: 1.87


TOTAL MONTHS = 177
DROPS < -5% = 15
POPS > 5% = 24
 
The margins on these spreads in the futures are set by the clearing firm based on the SPAN calculator.

I can put on 3 C / 3 P spreads as far OTM as I can get 1.20 + in each month for the next three months for only 2K - 3K maintenance margin collecting 5K+.

Of course it is dynamic margin. + The closer to delta neutral you get the lower the margin.

Truly unbelievable compared to SPY/X

Most spreaders graduate to the FUT. Much better.

Here is an example for you guys. PM me for more.

I have excellent relations with my SP options broker on the floor as well. If you want to talk more about transferring to SP's vs the equities PM me.

Check out the Plot.

I have many more examples.

Rafael


Raf
 
See attachment for graph!

Raf



QUOTE]Quote from RAF618:

The margins on these spreads in the futures are set by the clearing firm based on the SPAN calculator.

I can put on 3 C / 3 P spreads as far OTM as I can get 1.20 + in each month for the next three months for only 2K - 3K maintenance margin collecting 5K+.

Of course it is dynamic margin. + The closer to delta neutral you get the lower the margin.

Truly unbelievable compared to SPY/X

Most spreaders graduate to the FUT. Much better.

Here is an example for you guys. PM me for more.

I have excellent relations with my SP options broker on the floor as well. If you want to talk more about transferring to SP's vs the equities PM me.

Check out the Plot.

I have many more examples.

Rafael


Raf [/QUOTE]
 

Attachments

Quote from newguy05:

Not to nitpick that's still not close to the 425 point difference between 925 & 1350.

Anyway my point is lets use this example:

At Oct when SP is at 1580, say i sold put at strike 1280 (300 pt otm). As the SP comes down in price hitting my stop loss (be it 2x credit, or strike or midpoint), i would take the loss, close the spread, then roll it out by doubling my position to cover the losses (of course assume i have the cash/margin to do this)

Yes i would be doubling my risk by the roll to try protect my profit. If you keep doing this it bascially becomes the dreaded martingale approach (or worse).

But my question again is what are the probability realistically that you would need to roll more than once given that:

1) You start off selling 300 point OTM put spread
2) 300 pt drop on the SP would take some time, so you are gaining the time decay
3) With such a big drop, volatility will be up, so logical to assume when you roll, you can write another 300 point OTM put spread receiving the same credit as the previous one.

So now you are again 300 point otm, with twice the risk exposure, same expiration month, similar credit profit.

What are the chances you need to roll AGAIN before expiration?
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If you did not receive the answer to your question: "What are the chances you need to roll AGAIN before expiration"

At the moment you rolled, you know the prob of the short option in the money at expiration (roughly equal to the absolute value of the short put delta). Multiply that by two, and you get the probability you are looking for.

I have read multiple books where they run simulations for this probability (some even charge for the calculator). I think one does not need to do so.

Could anyone verify my result with a calculator? I can also post the mathematical proof for this, which is rather simple, but not trivial at first thinking.

I think you are doing a good thinking here. I have some possible improvements, but further your thinking and we may talk later.
 
how about the position close to delta neutral to further reduce risk? Using spx june option as example.

strike 950 put has a delta of 0.01
strike 850 put has a delta of 0.006

if i sell 1 contract of 950 and buy 2 contract of 850, my position should be pretty close to delta neutral. I think you call that a static delta hedging? I would still make a profit of about $1 credit from this put spread.

Does sell 1 950 put + buy 2 850 put reduce my risk further than sell 1 950 put and buy 1 850 put per above?
 
Quote from newguy05:

how about the position close to delta neutral to further reduce risk? Using spx june option as example.

strike 950 put has a delta of 0.01
strike 850 put has a delta of 0.006

if i sell 1 contract of 950 and buy 2 contract of 850, my position should be pretty close to delta neutral. I think you call that a static delta hedging? I would still make a profit of about $1 credit from this put spread.

Does sell 1 950 put + buy 2 850 put reduce my risk further than sell 1 950 put and buy 1 850 put per above?
More...

Tell me what happened to your first idea and related question: the probability of re-rolling?
 
this is an addon to the first idea. It just further reduce the need to reroll at the cost of less profit. As you are delta neutral at the get go, your stop loss (reroll) should be hit further out depends on your gamma exposure.

Easy example, obviously the numbers are approx:

1 950 put $2.3 delta 0.1
1 805 put $0.7 delta 0.06

If spx drops 20 pts. You lose 20 * 0.04 = 0.8

1 950 put $2.3 delta 0.1
2 805 put $0.7 delta 0.12

If spx drops 20 pts. You are still about even, ignoring gamma
 
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