Iron Condors --help

[spindr0]

Basically , as I understand with the SPX at 1115 , the SPX would have to move 75 points up or the DOW would have to move 800 points up in 48 days to see a loss or the SPX would have to move down 125 points or the DOW would have to drop over 1300 points for me to lose on the downside. I know I won't get filled at 2.10 , but lets say 1.95. My risk reward is roughly 4 to 1.

I hope to invest $100-150 K in IC's and Calenders in a yr or so, once I learn more. So if I lose 30% - 40% of the $7900 invested now (due to a massive move) I could deal with it. (not to sound like a smartass). I plan to put on 1 or 2 trades a month(10 contracts each) for 1 yr, learn and see how it goes.

Expanding a bt on what Mark wrote, suppose something spooks the market and within the first week the SPX drops 1/4 of the way to your short strike and IV expands a bit.

Maybe you have $200-300 loss per condor, 2-3g per 10 IC's... and how much if your full 150 K is the pot? Now, maybe you adjust. Buy some more expensive protective legs which might make your entire position profitless? Sell more legs at different strikes, increasing your risk? Maybe these makes things better, maybe worse.

Or maybe you think that it's still a long way down to that short 1000 put and the force is with you. So you do nothing. The SPX heads a bit lower and maybe IV perks up a little more. Your loss per condor is increasing. Still confident that you have plenty of buffer? Did you save some dry powder for the expanding margin requirement? (see IV of 50+ less than a year ago).

At what point do you start to get overwhelmed by the losses? Or do you have the stones to resolutely say that it's not going to break through 1,000 and your misfortune is just temporary (as the market mugs you daily)?

So you had this really wide, seemingly almost riskless buffer. Good odds. Funny thing about odds - if they're 4:1 in your favor, they mean nothing when you're the 1.

I'm not attempting to discourage you from trading. Just suggesting that risk should be respected and feared and no matter what you're trading, AFAIK, protecting your principal is far more important than collecting that small profit. Corny as it sounds, you need to be able to live to fight another day.

Good luck!

 

[JohnGreen]

Some comments:

1) I checked the current prices at the close Friday and see that about $1.60 is a more likely price for this condor. If you actually got 1.95, you are doing well. The SPX market makers are a bit tricky, but you can make this work if you are patient.

2) Have you simulated what would happen if the market dropped by 60 points in the next two weeks? The IV would likely rise about 10 points to 30%, and my guess (according to the TOS simulator) is that the cost of those March puts would double or triple, depending on which put you choose. If that is your plan, you should know that.

3) Everyone who trades IC's should have a trade management plan which gives them a solid strategy for dealing with sudden moves in either direction and also for slow moves which steadily move toward your short strikes. Your plan should deal with both time to expiry, IV, and distance to the short strikes which are all important. There are a huge selection of choices for what to do, but you must have a plan that you are prepared to follow, even if it means taking losses at times. Refusing to take losses when the odds are against you means that eventually you'll get taken out and shot in the market!

4) Please realize that most, if not all of those responding to your posts, actually are trading IC's or something very similar to what you are proposing. As an experienced trader, I'd say your choices of strikes, length of time to expiry, and the level of credit you are aiming for are all pretty good. I'd also say that you should trade a bit smaller to start with even with a lot of capital. It takes a while to learn the nuances of this business, but you are getting good advice and heading in the right direction.