Iron Condors

M

maninjapan

Ive got a general understanding and a little experience with general condors now. It seems to be a relatively popular strategy. I have noticed the idea of 'legging into iron condors' seems they way to manage them correctly. I understand what this means but my question is. How do you handle the timing and know what parts to put on when? I understand that this is the key to being successful with them, but some general info would be greatly appreciated.

Cheers!
 
Legging in requires, as noted above, market timing skills.

Generally, you should avoid being naked short options when legging in so it doesn't blow up in your face should something crazy happen in the market. You also need to have the discipline to complete the position (or at least get out) even if you time the market incorrectly.
 
So are all and any combinations on the table when legging in? (apart from a naked side)
or is one combination more common?
Call Spread then put spread for example?
 
How do you handle the timing and know what parts to put on when? I understand that this is the key to being successful with them, but some general info would be greatly appreciated.
More...
Yep, legging in is timing the market and to do it, you need the patience to work the order as well as the discipline to immediately fill an offsetting leg if the underlying reverses (completing the spread, etc.).

Most people recommend that you work the long side first. That's good advice and shouldn't be violated unless you have the experience and discipline to act decisively.

One way is to build positions incrementally. Start with 5 of the long leg. If prices move nicely, you could add 10 short legs, resulting in 5 filled spreads and 5 net short (naked). If price cooperates, add 10 long legs, resulting in 10 spreads and 5 net long. The point is to never be net long or short many of either side so that if you are forced to complete a spread quickly, you'll have a larger number of initial spreads with much better fills and only 5 at a modestly worse fill. Bear in mind that you started opening positions because you thought that the circumstances/price was acceptable/good and legging is just trying to get more. Work that body! Errrrr leg! Errr spread! :)

Another example would be positions that have synthetic equivalents. Set them all up in your trading platform. In the case of an iron condor, set it up as a pair of spreads as well as a pair of strangles. Sometimes someone else will want one of the components and will bid bid more aggressively for it and you can get a much better fill going in one way rather than the other. Use price alarms to bracket all components so that anything that pops up will alert you to a potentially better fill. You'll see this a lot where the options are active due to pending or just released news.

And then there's just the safe way of splitting the B/A in your order and accepting that as a better fill.

Good luck.
 
Spindr0, thanks. Thats definately some food for thought. When you refer to ' Fill the long side first' are you talking about the long side of just one half of the condor (Put spread or call spread)? and then work the other half? or start with the 2 outside buys and then the 2 inside sells?

BTW, if anyone has any other info or knows of any good books on advanced condor spreading, Im all ears.

And cheers again!!
 
Quote from MTE:

Legging in requires, as noted above, market timing skills.

Generally, you should avoid being naked short options when legging in so it doesn't blow up in your face should something crazy happen in the market. You also need to have the discipline to complete the position (or at least get out) even if you time the market incorrectly.
More...

MTE, do you personally trade Iron Condors?
Was it profitable last year for you?
 
Quote from gkishot:

MTE, do you personally trade Iron Condors?
Was it profitable last year for you?
More...

Yes, I do trade them. I lost money on them last year, about 5-10%.
 
Quote from maninjapan:

I have noticed the idea of 'legging into iron condors' seems they way to manage them correctly.

Cheers!
More...

1) You have started with an <b>incorrect assumption</b>. Legging into iron condors - or any option trade - is NOT the way to do it 'correctly.'

It is merely one way to build a position.

It's a method that has the potential to increase your profits and your losses. The markets are sufficiently volatile - there is no need to increase the volatility of your P/L results. At least that's my 2 cents worth.

2) Timing the market is very difficult. I'd go so far as to say it's almost impossible. Thus, <i>unless you already have a proven track record</i> of successfully and profitably timing the market, this is NOT the right path to follow.

2) You don't have experience with iron condors. Get some good trading experience undr your belt first. That means really <i>understanding</i> how iron condors work. How to open a position; how to manage risk; how and when to consider closing a position - either to lock in profits or to manage risk. Once you have a good feel on how to do all that successfully - then and only then should you even think about legging into these trades.

3) If you disregard this advice, then pay attention to what SPIN told you.

Mark
http://blog.mdwoptions.com/options_for_rookies/
 
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