Iron Condor

[opt789]

Quote from TradingPilot:

An Iron condor seems to good to be true. I am always very skeptic of strategies that just seem like easy money.

Anyone here use the strategy often?

Go easy on me guys im a n00b.

You guys are going to make me pull out what little hair I have left. Can ICs make you money, does it seems like you have a great chance if you sell them far enough away, does it look like a great idea to just sell them every month and make high % returns? The answers are yes. That is why newbies get suckered into them. Will YOU make money, in the long run, using ICs or any single option strategy? The answer is definitely no.

From what I have read optioncoach has made money with ICs, and so have I, but we are professional option traders who have spent a long time learning everything about options which means we know exactly what can happen and what we can and can't do to minimize risk, and hedge or change the position.

There are a few simple strategies, covered calls and the like, that investors can use to their advantage, but you should not trade options until you have spent years understanding them. Among other things, the bid/ask spreads are huge and every edge you can think of is in favor of the market maker not you.

 

[forex-forex]

Quote from TradingPilot:

An Iron condor seems to good to be true. I am always very skeptic of strategies that just seem like easy money.

Anyone here use the strategy often?

Go easy on me guys im a n00b.

Post a trade you have in mind and then we can show you the potential problems. Big problem is having to open 4 positions and dealing with the transaction costs.

You also might be looking at an Iron Condor on a volatile stock with earnings coming up. If so your credit will be inflated because that stock could really move creating a loss.

 

[TradingPilot]

I'm not planning on writing any options in the near term. I'm only a college student trying to learn as much as I can. My goal is not to trade my savings account, or try to become a millionaire with $1000 in a year.

I'm simply fascinated with the complexities of an options contract. I have been reading about options for quite a while now but some things you just cant grasp in a book(s).

I have no real connections with true options traders that is why I rely on this forum for some sort of mentoring.

Here is an example of what I think an IC should look like please feel free to tear this strategy apart


I really appreciate you guys taking your time in doing this.

 

[psytrade]

Oddly enough, some "trader" recently got my home number and was trying to sell me on the benefits of an iron condor "strategy". He said buying options is a suckers game... and that they work with high net worth individuals... a traders edge they were called. Probably got my name through some magazine I subscribe to.

Must be another sign of a Market top.

 

[forex-forex]

Quote from TradingPilot:

Here is an example of what I think an IC should look like please feel free to tear this strategy apart

Depends a lot on the stock and timing, especially around earnings or scheduled announcements. An un-scheduled announcement can pretty well guarantee you a loss.

It would be easier to give you more feedback on Iron Condors if you posted a paper trade with the credit you received minus commissions. Commissions can really cut into any profits you might make.

 

[ryank]

Quote from TradingPilot:


I really appreciate you guys taking your time in doing this.

Whether this trade is considered good or bad depends on your outlook for Ford. You are betting that Ford will be between $6.86 and $11.15 in September (not a bet I would take give the risk/reward).

I personally don't like doing spreads that far out. I tend to stick to spreading indexes only and then only doing the front month (i.e. June right now) but to each his own. Since you are starting out I would recommend looking at front month spreads only. You will see how moves in the stock/index affects price as well as watching theta as expiration gets close. With the iron condor you are looking at the expression "Eat like a bird, crap like an elephant" comes to mind. It's just the way these FOTM spreads work in the marketplace.

Another poster mentioned commissions. In your example, you receive a credit of about $250 - $25 = $225. To close the position later on would cost another $25 so you would have a risk of losing $750 and a reward of $200 using my rough numbers.

 

[torontoman]

Quote from TradingPilot:

I'm not planning on writing any options in the near term. I'm only a college student trying to learn as much as I can. My goal is not to trade my savings account, or try to become a millionaire with $1000 in a year.

I'm simply fascinated with the complexities of an options contract. I have been reading about options for quite a while now but some things you just cant grasp in a book(s).

I have no real connections with true options traders that is why I rely on this forum for some sort of mentoring.

Here is an example of what I think an IC should look like please feel free to tear this strategy apart


I really appreciate you guys taking your time in doing this.

Why don't you try one contract at a time? This way, you could learn how to enter the orders, observe price movemnt etc. Do this for about a year. You can learn a lot. You may conclude that the risk reward is not worth it.

 

[cash888]

Hi all,



Any better alternate income strategies?

Thanks for enlightening.


Cheers,
john

 

[thinkplus]

Quote from optioncoach:

Its ok, my option account likes them very much lol... and I only do ICs occasionally.

OC: are you suggesting an alternative to IC? would it be right to say that one should have a combination of (income) strategies?

I was leaning toward ic/credit spread in high vol, and calendars in low vol. environment. of course, it is a million dollar question if i can predict the vols!

 

[El OchoCinco]

Quote from thinkplus:

OC: are you suggesting an alternative to IC? would it be right to say that one should have a combination of (income) strategies?

I was leaning toward ic/credit spread in high vol, and calendars in low vol. environment. of course, it is a million dollar question if i can predict the vols!

Iron Condors work great in low vol environments until it changes. This is the paradox most people overlook. It is not a high vol environment where they do well, it is low vols.

I abandoned ICs after AUG when vols were no longer low relatively. I did not blow out since I kept them to a limited % of my account nor did I blow out years of profits but I still had to take a loss and get out.

I think any investor should have a combination of strategies to adjust to changing conditions. If vols spike up, adjusting does not mean simply going further OTM, the risks are still the same since the market now makes wider swings.

I have migrated more to Butterflys and legged into positions as well as using a rare calendar when vols dip and a sell off looks like a good possibility. Like I entered into a SPY calendar when vols dipped last week with OTM puts thatis doing nicely going into expiration tomorow.

I traded ICs for a few years during relatively low vol markets and I told a lot of people that after August you still do them at your own risk.

I do not think there is one best income strategy, it all depends on market conditions.