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iron condor
- Thread starter osho67
- Start date
Quote from Dolemite:
If margin is an issue than you are putting too big a position on or you need a larger account.
I agree. And the margin is not that high. Your return on margin is waaaaay higher then IC's. The margin for selling an ATM straddle on ES right now is about 4k. For an iron condor it would be 4 times that to make the same amount of money. You only have to sell one straddle to make the same amount from doing the IC 20 times. There is absolutely no comparison. You have to leverage the 5 and 10 delta spreads way too high to get any meaningful return. No such leverage is need for the ATM straddle.
Quote from Dolemite:
If margin is an issue than you are putting too big a position on or you need a larger account.
no its not an issue, its just a wayyy too risky trade. i'm trading a pm account and can see a trade like that really doing some damage to you account and buying power. its a costly trade. thats just a quick look, using spx, but same would apply to eminis.
Quote from daveyc:
no its not an issue, its just a wayyy too risky trade. i'm trading a pm account and can see a trade like that really doing some damage to you account and buying power. its a costly trade. thats just a quick look, using spx, but same would apply to eminis.
No, the risk is in the gamma and when you sell the ATM straddle your are selling the gamma at it's peak. In other words, you are de-levering. When you sell cheap gamma (5 and 10 delta), you are actually increasing your leverage. The straddle is much easier to control your risk because as the position moves against you, your gamma is disappearing. With an IC, as your position moves against you, your gamma is exploding in your face. It's almost impossible to manage large short gamma positions outside of just puking your position.
Quote from daveyc:
no its not an issue, its just a wayyy too risky trade. i'm trading a pm account and can see a trade like that really doing some damage to you account and buying power. its a costly trade. thats just a quick look, using spx, but same would apply to eminis.
I understand and feel the same way. I get nauseous looking at a T+0 line that drops off a cliff. That is why I buy additional otm longs especially on the put side. However, the key is that it is only a part of your overall portfolio/strategy. The trouble a lot of people get in to is trading a huge iron condor expecting it to return 5% a month on their entire portfolio. What they should be doing is trading one so that the max risk (strike price difference on the put side minus the credit received) is less than 2% of their account value. Hopefully if things go wrong they will be out well before that. But I have seen too many people that think they can get out on an adverse move and don't calculate what things like volatility will do to their trade. They treat the risk graph they see in their trading platform as set in stone and when things go south they are losing a lot more than it projected. Of course this philosophy ends up returning around a quarter of a percent per month and that isn't good enough for a lot of people.
Quote from Maverick74:
No, the risk is in the gamma and when you sell the ATM straddle your are selling the gamma at it's peak. In other words, you are de-levering. When you sell cheap gamma (5 and 10 delta), you are actually increasing your leverage. The straddle is much easier to control your risk because as the position moves against you, your gamma is disappearing. With an IC, as your position moves against you, your gamma is exploding in your face. It's almost impossible to manage large short gamma positions outside of just puking your position.
The reason a 5 delta option (which a very low prob of being in the money) is so pricey is because those 3rd order effects are very real.
Quote from daveyc:
ok guys, we'll just have to agree to disagree on those trades and whether they are a safer alternative to iron condors/credit spreads. i am not an expert.
my focus for income trades is to flatten vega and gamma from the start. that is how i turned things around in my trading.
Of course you turned things around. They work fine 95% of the time. What your greeks are at the start of your position are irrelevant. It's what they become that creates the problem.
Quote from Maverick74:
Of course you turned things around. They work fine 95% of the time. What your greeks are at the start of your position are irrelevant. It's what they become that creates the problem.
ofcourse, any trade is not a set it and forget it. but i set up in the safest manner possible knowing that adjustments will be necessary.
Quote from daveyc:
ofcourse, any trade is not a set it and forget it. but i set up in the safest manner possible knowing that adjustments will be necessary.
You can't really adjust anything when gamma is exploding in your face. An adjustment is simply adding another trade with it's own sets of risks and rewards. The best move is simply to exit the trade and eat the loss. Of course most guys don't do that because it will eat up their last 6 months of profits.