Iron Condors and Stupidity

[riskfreetrading]

Long or short condor, debit or credit condor/etc: is wrong headed terminology.

Ask the man this question so he cannot dance anymore: are you net short or net long option premium in your condor (or whatever else you got)?

No confusion after the latter question is posed, and answer. There can only be one answer, no matter how you look at it or implement.

Most option traders sell premium, but they do not like to say it as it does not look grand. Condors are one of the few strategies where they can say, I am LONG and find a "justification". Because most of time they cannot use that word, as they are SHORT (premium) people.

 

[rluser]

as has been already pointed out in this thread: long or short premium may work for condors, but not 'whatever else you got'

 

[neveragain]

Quote from dagnyt:

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

IV= real option price ... your coments only shows you don't have a clue how options works....
getting pennies to risk big bucks it is just nonsense

 

[rluser]

Quote from neveragain:

IV= real option price ... your coments only shows you don't have a clue how options works....
getting pennies to risk big bucks it is just nonsense

wtf? If you'd been paying attention you would be well aware that dagnyt has NO interest in earning pennies while risking big bucks

he specializes in selling theta and vega when it makes sense to him

 

[tyrant]

Does mechanical selling iron condors or strangles on a fixed date every month using very very little leverage with discipline of rolling out result in an EDGE over the long term? I am targetting about 10% p.a. return with enough capital to keep rolling out 6 to 7 times. Personal backtesting and limited real track record shows that it is very safe. Even with the recent historical volatility, the position can be defended by rolling the most 3 times.

If I want to be very safe, I can even delay rolling out, and sacrifice more time before recouping all the premiums again when the dust settles.

However, even though I am having success doing it, I am still hesitating to commit more capital because I keep hearing that there is no edge. But surely, there must be some edge because buying is so much harder. I mean, even Warren Buffett must have thought there is some edge in selling those options. We are providing insurance and comfort to option buyers. As long as no overleverage, why is it not doable?

 

[MTE]

Quote from RichardRimes:

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

I don't know, I haven't read the book yet, just found the term by accident, so to speak.

 

[MTE]

Quote from tyrant:

Does mechanical selling iron condors or strangles on a fixed date every month using very very little leverage with discipline of rolling out result in an EDGE over the long term? I am targetting about 10% p.a. return with enough capital to keep rolling out 6 to 7 times. Personal backtesting and limited real track record shows that it is very safe. Even with the recent historical volatility, the position can be defended by rolling the most 3 times.

If I want to be very safe, I can even delay rolling out, and sacrifice more time before recouping all the premiums again when the dust settles.

However, even though I am having success doing it, I am still hesitating to commit more capital because I keep hearing that there is no edge. But surely, there must be some edge because buying is so much harder. I mean, even Warren Buffett must have thought there is some edge in selling those options. We are providing insurance and comfort to option buyers. As long as no overleverage, why is it not doable?

Noone can answer whether you have an edge or not, it's entirely up to you.

You edge, if any, may be coming from the choice of intial strikes and/or when, how, and where to you roll.

 

[spindr0]

Quote from MTE:

You edge, if any, may be coming from the choice of intial strikes and/or when, how, and where to you roll.

I agree wholeheartetedly. And sometimes, it's a tad of luck as well.

I've been working a bear approach for 15 months. Intraday drawdowns occasionally occurred but were tolerable. during the morning of last Sep 12th (Fri), I had the worst intraday draw down (at that point I was 9 months into it). That was the day the rumors of LEH's pending demise were running amok. As the loss increased, I began weighing my chioices. When it exceeded my tolerance, I decided to shut down. Since the position had to be taken apart in a ratchet down fashion (long and short legs), I spent 15 minutes getting my head wrapped around it and getting my exit strategy together. In that mere 15 minutes, the market began its reversal. I did not exit and with active trading of the components (and a BIGGGG rally), I recovered 80% of the loss.

Three days later (Monday), they buried Lehman and I had my best day of the past 15 months. 15 minutes was the difference b/t a big loss and a best day. Some might call that timimg. I call it luck and AFAIK, it's part of trading, regardless of the strategy.

 

[dagnyt]

Quote from neveragain:

IV= real option price ... your coments only shows you don't have a clue how options works....
getting pennies to risk big bucks it is just nonsense

What is nonsense is your inability to understand the written word.

I never sell call or put spreads (one of each = iron condor) for pennies. I always tell readers that selling for pennies is foolish and a long-term losing strategy.

I usually trade IC by collecting 30 to 35% of the maximum premium, limiting max loss to 65-70%. Thus, trade a 10-point iron condor, collecting $3 or more.

But the most important part of determining success as a trader is risk management, not strategy selection.

Mark

 

[jwcapital]

Just wanted to express how the end-game occurred. First, I managed to turn a profitable $2,700.00 IC into a $238.00 loss. The bull put spreads were allowed to expire since they were DOTM. As you may recall, I placed bear calls spreads (8) to replace the closed out-ones (for a profit). I did this as the market moved down to 665. Of course, the market sharply rebounded. I did get to close out 3 of the bear call spreads for a very small profit. As the market approached 3 of my now ATM short calls, I closed them out for a big loss. Now, with two bear calls remaining (C775 and C790), I monitor. As this point, I still have a shot at a $1000.00 profit. The C770 goes ITM as does the C790 on Wednesday. When I flip on the computer Thursday AM, the ES is up to 805. At this point, I am looking at a $1250.00 loss ($1,000.00-$2,250.00). So, I do realized that if the ES pops here, I am really dead meat. So I look to minimize my upward loss. At this point in the game, one cannot close out an ITM option at a fair price, for the time premium is too high. So, I waited for a pullback to 800 and bought an ES future. Then, I waited some more and bought another ES future at 790.00. At this point, if the market soars, I limit my loss to $250.00 (1,000.00-[35x50]). Of course the market doesn't soar and I ended up buying an ES future near the top for the day. The ES closes at 784.25 on Thursday. The SOQ (special opening quote at 9:30 AM EST on which all ES futures and futures options are cash settled) opens at 788.00. So, at this point, my loss for the March period is around $238.00. Of course, if I did nothing on Thursday, I would have ended up with a $350.00 PROFIT.

Things to learn: (1) the underlying does not always go straight up and down. After two weeks of downward movement, I should have trusted my philosophy and system and recognize that a two-week bounce would not be unreasonable. If one has a chance to cash out one side of the IC for an 80-90% "keep" of the premium, then do so. The March movement of the underlying was the perfect setup to just cash out the bear calls and as the market rebounded, cash out the bull puts for a decent, overcall profit. (2) I wouldn't repeat the mistake I made by replacing most of the bear calls on the way down. The premium is too small at this point and it really provides no protection and tons of upside risk.

Anyway, I wanted to provide the epilogue as a learning experience. As someone once said: "One only learns from his mistakes, not from his successes."