Iron Condor When/how to adjust ?

For those who are not aware, TOS gives you the prob of touching and expiring in their platform. Works well if the volatility inputs are 'correct' :). But then, coming to think of it, everything works well if the vol guess is good.
db
 
Quote from Profitaker:

The formula is quite complicated, I'll see if I can dig something out. But my understanding is that the probability of the underlying touching a strike 1 StDev out is roughly twice that of it expiring at or beyond the strike.
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You can do a monte carlo simulation to find the probability of touching. I used to use POT in my trading, but recently I don't use it anymore.
 
Quote from FT79:

...trading short strangles can kill you when the ES drops 3% in 1 day and you don’t know what to do.
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So as long as I know what to do a 3% one day drop won't hurt me. Sweet.
 
Quote from yip1997:

You can do a monte carlo simulation to find the probability of touching. I used to use POT in my trading, but recently I don't use it anymore.
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Yes you could use monte carlo, but I find it too long winded for the same result which can be calculated by formula.

I constantly use probability of touch in my trading.
 
my statement is for the spx, and uses vxo as the input, which is known today, and the numbers are correct.

Quote from basis:

You're not catching what I'm throwing.

You can't say that without defining a standard deviation for the appropriate time. You need a volatility input to do that. You can only know that volatility input after the fact. So your statement is a tautology.

BTW, it is true that closing at or beyond a certain deviation is twice that of touching the same strike. This is just a random walk issue. Once you reach the strike, there's a 50% chance of being up or down from there.
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Quote from LeonPhelps:

There is inherent edge in premium selling. Discuss.
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I have to disagree with this statement. I want to also say that I love, love to sell premium, all the time. I try to get net long contracts, short gamma. Whenever I'm too short gamma, I'm at blowout risk if the underlying makes an enormous overnight/ weekend move. Plus it eats up all my buying power, and reduces returns for all the capital it takes to carry tons of short vol. The short gamma acts as an equalizer to the long theta. Those two risks counterbalance each other.

If there was an edge in selling, there would be no bids in the options mart (ignoring moneyness).
 
Quote from Profitaker:

Yes you could use monte carlo, but I find it too long winded for the same result which can be calculated by formula.

I constantly use probability of touch in my trading.
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I once used the formula found in riskmetrics, but found that sometimes it gave a result greater than 1, and so I don't trust the formula anymore. I don't have enough math skill to derive the formula myself.

In fact, in the article that I read, it indicated that the results of the formula and monte carlo simulation were different.

Can you publish the formula? If I get an accurate formula, I get find POT in real-time.
 
are you using backspreads to accomplish the net long?

Quote from volatilitypimp:

I have to disagree with this statement. I want to also say that I love, love to sell premium, all the time. I try to get net long contracts, short gamma. Whenever I'm too short gamma, I'm at blowout risk if the underlying makes an enormous overnight/ weekend move. Plus it eats up all my buying power, and reduces returns for all the capital it takes to carry tons of short vol. The short gamma acts as an equalizer to the long theta. Those two risks counterbalance each other.

If there was an edge in selling, there would be no bids in the options mart (ignoring moneyness).
More...
 
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