Iron Condors and Stupidity

MAESTRO · Mar 17, 2009

Interesting discussion. I find that symmetrical condors are the least profitable. I trade call/put IV adjusted condors with the 1/2 width of long wings vs short wings. My usual credit (depending on IV on S&P) is around 8 points on ES. I do the adjustments of the guts and leave the wings untouched. I have been running this strategy for 10 + years with constant success. In 2008 we made good money as well. It's just the matter of understanding of this construct and having a good plan to maintain it.

dagnyt · Mar 17, 2009

Quote from MAESTRO:

1/2 width of long wings vs short wings

Translate, please

Mark

MAESTRO · Mar 17, 2009

Quote from dagnyt:

Translate, please

Mark

number of points between current price level and the short put strike vs number of points between the short put strike and the long put strike. The same for calls

neveragain · Mar 17, 2009

Quote from dagnyt:

Why would you believe that 90% of iron condor traders lose money?

I don't know which is worse - the possibility that you could believe such nonsense, or your attempt to spread that idea.

Mark

EX: rut index short= apr 370 put=imp,vol=50%
long=apr 320 put=imp,vol=55%

buying high and sell low

dagnyt · Mar 17, 2009

Quote from neveragain:

EX: rut index short= apr 370 put=imp,vol=50%
long=apr 320 put=imp,vol=55%

buying high and sell low

You believe that's why 90% of iron condor traders lose money? Because they pay a higher IV for the puts they buy than the puts they sell?

Are you serious?

I don't mind paying that higher IV because I trade dollars, not IV chips. I buy lower priced options and sell higher priced options. Goal: lose IV chips, gain dollar chips.

Mark

RichardRimes · Mar 17, 2009

Quote from MTE:

Today I received the "Option Strategies for directionless markets" book by Anthony Saliba. So I open it up and I see that he also refers to the iron condor where you short the body and long the wings as a long iron condor.

Don't get me wrong, I'm not admitting defeat, I still think "selling" and a "short iron condor" fits it better, but I just wanted to be fair and post my finding.

does Anthony give any reason for calling it "long"??

RichardRimes · Mar 17, 2009

Quote from spindr0:

You suggest a nomenclature possibility where you would be considered short when you have a credit and long when you incur a debit. Consider a diagonal. Using a LEAP instead of a 2nd month leg can change a same strike (different month) position fro a credit to a debit yet in both cases, the front month is being sold.

So I think you have it right in that there will never be perfect clarity since there are always scenarios where it gets contradictory.

diagonal's are different animals since you have chosen to risk more near term...so not sure you can ever say I have "bought" or "sold" a diagonal.

RichardRimes · Mar 17, 2009

Quote from MAESTRO:

Interesting discussion. I find that symmetrical condors are the least profitable. I trade call/put IV adjusted condors with the 1/2 width of long wings vs short wings. My usual credit (depending on IV on S&P) is around 8 points on ES. I do the adjustments of the guts and leave the wings untouched. I have been running this strategy for 10 + years with constant success. In 2008 we made good money as well. It's just the matter of understanding of this construct and having a good plan to maintain it.

when you say you adjust the "guts" then you are buying back your shorts??? and re -selling them? tia

RichardRimes · Mar 17, 2009

Quote from dagnyt:

This a good point for discussion.
my mind.]
Now the question is, what makes this 'long?" Is it the fact that cash is paid? Probably. When we own a condor, we profit when the stock does not move outside the range.

Let's look at the 'iron' equivalent of this condor, also a position that profits when the stock does not move outside the (same) range.

Long Nov 35 put
Short Nov 40 put
Short the put spread

Long Nov 55 call
Short Nov 50 call
Short the call spread

It seems logical to me that if I am LONG the condor, and the <i>equivalent position</i> is an IRON condor, then I should be LONG the IRON condor as well.

Thus, to me the debate is:

Are we long the iron version because it has the same risk/reward parameter as the regular condor?

Or are we short the iron condor because equivalency doesn't matter. What matters is the fact that we sold two spreads and collected cash.

I vote for equivalency being more important.

But, I do see a point of controversy. Long a call spread is equivalent to being short the put spread. These are surely equivalent. So the argument becomes more subtle. It's okay for a long call spread to be equivalent to being short a put spread because the spreads have different names: put spread vs. call spread.

But because they are both condors (iron being an adjective, and not meant to represent a different spread) then long one is long the other.

I wonder who should make the final decision - but clarity on this point would be a good thing.

Mark

ok..my vote is simplicity...we are short or sold because we collected cash..don't care about how equilivant it is.

riskfreetrading · Mar 17, 2009

Quote from MAESTRO:

Interesting discussion. I find that symmetrical condors are the least profitable. I trade call/put IV adjusted condors with the 1/2 width of long wings vs short wings. My usual credit (depending on IV on S&P) is around 8 points on ES. I do the adjustments of the guts and leave the wings untouched. I have been running this strategy for 10 + years with constant success. In 2008 we made good money as well. It's just the matter of understanding of this construct and having a good plan to maintain it.

operating word is "guts". I knew I was not alone.... there are maestro's outthere.