Iron Condors and Stupidity

RichardRimes · Mar 15, 2009

Quote from dagnyt:

This a good point for discussion.

Short Nov 50 call

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

Mark

I don't think there will ever be great clarity. It depends so much on the broker. The one I used before TOS would have you "buy" or "sell" to close ....or "buy" or "sell" to open. One reason TOS just has sell or buy is that they don't see a multitude of potential positions as specific positions. Say you have a book of puts and calls on the SPX....depending on how you arrange them you could have any number of transactions from IC's to B-flys' to verticals, calendars, or diagonals. Therefore for simplicity perhaps it is just easier to say when you are short (ie you have received premium) then you have a sell and when you are long (you paid a premium) you have a buy.

dagnyt · Mar 15, 2009

Quote from RichardRimes:

Therefore for simplicity perhaps it is just easier to say when you are short (ie you have received premium) then you have a sell and when you are long (you paid a premium) you have a buy.

Simplicity works.

Not arguing, just like the idea of universality. probably you are right and it's just not attainable.

Thanks,

Mark

MTE · Mar 16, 2009

Quote from jwcapital:

IT VARIES, DEPENDING ON THE VOLATILITY AT THE TIME. WITH ALL DUE RESPECT, YOU NEED TO DEVELOP YOUR WING SPAN (AND BODY WIDTH) ACCORDING TO YOUR OWN COMFORT ZONE. THE LONG OPTIONS ARE YOUR ULTIMATE INSURANCE LEGS. YOUR SHORT OPTION PLACEMENT ALSO DEPENDS ON YOUR COMFORT ZONE. THERE IS NO SET FORMULA AS ANY IC TRADER WILL TELL YOU.

With all due respect, what's with the capital letters?

By the way, I do have my own approach to ICs, I wasn't asking for advice, so no need to tell me about my comfort zone and etc. I just wanted to see what risk/reward ratio that particular trade had.

MTE · Mar 16, 2009

Quote from dagnyt:

I hear you. And you make sense.

But to me, equivalency also makes sense.

I'd like to find a source with the definitive answer.

I was trained as a chemist and nomenclature was crucial. Yes, one could draw the chemical formula, but the name of a specific molecule must be unique with no possible misunderstanding. That's what I'd like to have in the options world.

What about my example:

If I buy Oct 80 call; sell Sep 75 call and pay $0.05, am I buying the diagonal spread?

If I do the same spread but collect $0.05, am I selling the diagonal spread?

Absolutely not! In that scenario no one would be able to tell what someone meant when they said 'buy' the spread. There must be a definition. I don't think cash is the definitive factor in defining buy vs. sell. But if I hear the right argument, I can be convinced I'm wrong.

Mark

I think my logic works pretty well for almost all spreads, except a diagonal, which sure does blur the line between long and short and buy and sell.

If I'm not mistaken, when trading calendar spreads it is customary to define them with respect to what you are doing with the back month. So if you are buying the back month then you are buying the spread...

MTE · Mar 17, 2009

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.

spindr0 · Mar 17, 2009

I don't think there will ever be great clarity... Therefore for simplicity perhaps it is just easier to say when you are short (ie you have received premium) then you have a sell and when you are long (you paid a premium) you have a buy.

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.

dagnyt · Mar 17, 2009

Quote from spindr0:

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

I wrote to the OCC, asking if they know of any definitive source for nomenclature.

They know of none.

Mark

neveragain · Mar 17, 2009

why not a debit IRON CONDOR
if 90% of the traders lose money why they keep doing credit iron condors and debit calendar spreads................
just my 2c

MTE · Mar 17, 2009

Interestingly enough, the CBOE's regulatory circular calls it a short iron condor (i.e. long the wings, short the body).

dagnyt · Mar 17, 2009

Quote from neveragain:

why not a debit IRON CONDOR
if 90% of the traders lose money why they keep doing credit iron condors and debit calendar spreads................
just my 2c

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