iron condor

[daveyc]

i agree with the guys that say the iron condors are very risky but iron condor traders should know that there are even riskier strategies out there.

when you set up your iron condor trade, take a look at gamma and vega, don't just focus on the delta position or the theta which is another lure to this trade. you will then see that this trade set up is not as safe as you thought. times like now with volatility so low would be a bad time to try this trade because any spike in volatility is going to hurt this trade.

if you were to backtest this strategy over the past few years, try to understand why you would have blown up your account on several occassions.

 

[newwurldmn]

Quote from daveyc:

i agree with the guys that say the iron condors are very risky but iron condor traders should know that there are even riskier strategies out there.

when you set up your iron condor trade, take a look at gamma and vega, don't just focus on the delta position or the theta which is another lure to this trade. you will then see that this trade set up is not as safe as you thought. times like now with volatility so low would be a bad time to try this trade because any spike in volatility is going to hurt this trade.

if you were to backtest this strategy over the past few years, try to understand why you would have blown up your account on several occassions.

It's not the gamma that hurts. It's the dgamma/dspot that kills. There's a lot of second order convexity and if you outsize like that Howard guy did, you will have a lot of exposure to it. The risks seem benign until you start to approach one strike then the risks explode.

If you don't outsize, I think it's a 5-6%/year strategy with a 10-15% drawdown.

 

[daveyc]

Quote from newwurldmn:

It's not the gamma that hurts. It's the dgamma/dspot that kills. There's a lot of second order convexity and if you outsize like that Howard guy did, you will have a lot of exposure to it. The risks seem benign until you start to approach one strike then the risks explode.

If you don't outsize, I think it's a 5-6%/year strategy with a 10-15% drawdown.

my bad, i'm assuming everybody is using the thinkorswim platform and viewing the greeks from the analyze tab.

 

[Dolemite]

Quote from ForexForex:

So what is a less risky alternative to the Iron Condor for premium income?

Learn how to pick direction and trade verticals. Either credit spreads or debit spreads.

Learn how to find stocks that are in a quiet period with low IV and learn how to trade straddles. Not a premium collecting strategy but can help balance out your credit spreads.

Everyone wants to treat options like an atm and think there is one strategy they can do all the time and expect above market returns. You have to have an edge, and trading just for theta usually isn't one of them. I didn't experience consistent profits until I embraced the fact that I wasn't smarter than everyone else and that you can't create an option strategy that will always be successful without predicting something (direction, volatility, etc.)

 

[ForexForex]

Quote from ForexForex:
So what is a less risky alternative to the Iron Condor for premium income?

Quote from Dolemite:
Learn how to pick direction and trade verticals. Either credit spreads or debit spreads.

Iron Condors are Credit Spreads, and there is no premium income with Debit Spreads. Try again.

 

[Dolemite]

Quote from ForexForex:

Iron Condors are Credit Spreads, and there is no premium income with Debit Spreads. Try again.

Yes they are the same but they have very different results. Moving too fast in one direction might not be an issue with a credit spread, with iron condors they will be. One is a directional trade the other is a non directional trade, completely different results. If you had read my message you would see that I inidicated that just trying to sell premium might not be the best strategy. Especially for an entire portfolio. Thus the debit spread/straddle discussion. Throw 50% of your portfolio in an iron condor and come back to us when we have a 2SD move down. Last thing, all retail traders are in to selling premium so there is a lot of opportunity to be a buyer. Especially on weeklies.

 

[Maverick74]

Quote from ForexForex:

Iron Condors are Credit Spreads, and there is no premium income with Debit Spreads. Try again.

I think selling ATM straddles in ES has a far better risk profile then iron condors if one really wants an income strategy.

 

[newwurldmn]

Quote from Maverick74:

I think selling ATM straddles in ES has a far better risk profile then iron condors if one really wants an income strategy.

I agree. 1:1 style payout profiles instead of 1:20.

EDIT: More like 1:2 style payout profile vs 1:20.

 

[Dolemite]

Quote from Maverick74:

I think selling ATM straddles in ES has a far better risk profile then iron condors if one really wants an income strategy.

Selling strangles with additional fotm puts works too. If price tanks those puts (at least 2 to 1 of what you shorted) really kick in and help minimize loss and might even profit. Obviously this has to come off when you get close to expiration since the bottom falls out of your extra longs but if you put this on when IV isn't down it is a pretty good trade. If you are worried about the upside then buy a call inside the short (at least 1 to 2 of what you shorted) so it acts like a ratio spread on the way up. If you have portfolio margin a long call with a shorter expiration than the short calls really plays on the drop in volatility.

 

[daveyc]

sorry guys, i have to disagree strongly on the posts about selling at the money straddles or strangles as a safer income strategy. look what it does to your buying power at different levels and the vega is way too negative.

any interest in buying back ratios?