Iron Condors and Stupidity

dagnyt · May 19, 2009

Quote from JohnGreen:

Unfortunately, there are a lot of websites out there that promote a set it and forget it mentality when it comes to iron condors. What that means in the end is that you set your positions and you can forget about having your margin money (sooner or later)!

For some people, they simply adjust by closing their position, and that can work just fine if you have a standard stop and out you go. For others like me, we try to add value to our positions as opportunities arise, and react to the market movement in other situations. What everyone must do to be successful at this is have a plan and know when and how to respond to various situations. It also helps to have done some analysis of the weaknesses inherent in your strategy. I know what I like to see, and I also know what will cause serious damage to my strategy. If that happens some month, then I will exit and forget about the the "need" to make 2-3%. It's much better to give up a little than to lose a huge chunk. I know that my plan is fairly robust and will work most of the time, but nothing is bulletproof, so anyone contemplating IC's based on this discussion needs to seriously realize that anytime margin is at risk it can be lost, and not think it is a license to print money.

I agree.

For emphasis, let me repeat the essence of what I believe and teach: <b>It's much better to give up a little than to lose a huge chunk</b>. It's neither necessary, nor possible, to earn a profit every month when trading iron condors.

Mark

Whisky · May 19, 2009

Quote from dagnyt:

I agree.

<b>It's much better to give up a little than to lose a huge chunk</b>.
Mark

Hence the essential need for a proper timing (price, volatility, both?) and sound approach for adjustments?

It'd be great to read what different users are using for adjustments in detail.

Thanks again for all answers and contributions.

JW

dagnyt · May 19, 2009

Quote from Whisky:

Hence the essential need for a proper timing (price, volatility, both?) and sound approach for adjustments?

It'd be great to read what different users are using for adjustments in detail.

Thanks again for all answers and contributions.

JW

I've provided plenty of detail on several different adjustment techniques for iron condors. Check out the blog - and especially comments and replies.

I don't have a list of specific posts, but the discussion you see is there - if you have the patience to find them.

Mark
http://blog.mdwoptions.com/

Whisky · May 19, 2009

Quote from dagnyt:

I've provided plenty of detail on several different adjustment techniques for iron condors. Check out the blog - and especially comments and replies.

I don't have a list of specific posts, but the discussion you see is there - if you have the patience to find them.

Mark
http://blog.mdwoptions.com/

Thanks dagnyt. I will slowly go thru that. I forgot to ask if there is a low-cost piece of software that can preferibly run in Excel and can be linked to broker datafeeds (Thinking IB now), and that can do the basic calculations, greeks, charts, etc.

Thanks again.

JW

sync · May 19, 2009

Quote from Whisky:

I forgot to ask if there is a low-cost piece of software that can preferibly run in Excel and can be linked to broker datafeeds (Thinking IB now), and that can do the basic calculations, greeks, charts, etc.

Thanks again.

JW

Peter Hoadley has an Excel option package that works with a variety of data sources including IB.

IB has their own Excel DDE interface. I have not used it and am not sure what it provides.

bebpasco · May 19, 2009

Quote from sync:

Peter Hoadley has an Excel option package that works with a variety of data sources including IB.

IB has their own Excel DDE interface. I have not used it and am not sure what it provides.

If this is the software that also has risk graphs (P/L Graphs), I've got a question for you. When modeling a risk graph for a spread, can you enter the IV after an event (say an earnings event) for the individual legs of a spread?

spindr0 · May 19, 2009

Quote from bebpasco:

When modeling a risk graph for a spread, can you enter the IV after an event (say an earnings event) for the individual legs of a spread?

Still chasing that dream, eh? (wink)

sync · May 20, 2009

When I consider adjustment points for an IC I can see there is a trade-off between smaller, more frequent losses and larger, less frequent losses. Is there a way to test how profitable or unprofitable various adjustment approaches are?

dagnyt · May 20, 2009

Quote from sync:

When I consider adjustment points for an IC I can see there is a trade-off between smaller, more frequent losses and larger, less frequent losses. Is there a way to test how profitable or unprofitable various adjustment approaches are?

You can always look back at what would have happened, but that is useless information.

What you want to measure is how 'good' are the decisions you made at the time you had to make them.

Suggestion: When adjusting, keep a detailed diary of what you did and why. Anything you write will help.

Include times you consider adjusting but rejected the idea.

At some point review each diary entry and decide if you panicked or did the right ot wrong thing. Try not to let the outcome cloud your judgment.

If you find you did the right thing a good percentage of the time, then I would take that as an indication that you are in good shape.

Mark

sync · May 20, 2009

Quote from dagnyt:

You can always look back at what would have happened, but that is useless information.

What you want to measure is how 'good' are the decisions you made at the time you had to make them.

Suggestion: When adjusting, keep a detailed diary of what you did and why. Anything you write will help.

Include times you consider adjusting but rejected the idea.

At some point review each diary entry and decide if you panicked or did the right ot wrong thing. Try not to let the outcome cloud your judgment.

If you find you did the right thing a good percentage of the time, then I would take that as an indication that you are in good shape.

Mark

I agree that I want a measure of how good my decisions are. But how do I determine if I did the right thing a good percentage of the time if I'm not sure what the right thing is? As you said, looking back at what would have happened is useless.