Iron Condors

ok, guys. Here is one I have put on (not yet complete). I would appreciate any comments, thoughts or criticism (constructive hopefully).
It is well within my risk limits, so there is nothing to worry about there. Small size to practive timing the market. The call side was put on yesterday and the Puts were just added today. . I took into account STD Dev. and S/R when choosing my strike prices. I know that a lot of people dont trade ICs on individual stocks and with earnings coming up that might make it a touch on the risky side, but the R/R looks quite good from where I stand.
My risk/return worked out slightly better setting the call as it is rather than 5 points apart and 1 contract each.


MAR09 70.0 CALL +2 .50
MAR09 67.5 CALL -2 .95

MAR09 47.5 PUT -1 1.15
Mar09 42.5 PUT -1 0.60

Total Credit = 1.00
Max Risk = $400
Days till Expiry = 66
 
The reward is too low compared to risk as are the 66 days to expiry too far out for my liking, but that's me. I prefer no more than 45 days out and a risk-reward ratio of no less than 3:1.
 
Quote from MTE:

The reward is too low compared to risk as are the 66 days to expiry too far out for my liking, <b>but that's me</b>. I prefer no more than 45 days out and a risk-reward ratio of no less than 3:1.
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Yes, that's you.

I see nothing wrong with trying to make $1 and risking $4 - depending on the circumstances.

To maninjapan:

1) are you <i>comfortable</i> with the risk and the reward?

2) do have a good reason (I don't care to know what that reason is) that the stock will 'behave itself'?

If yes to both, then this trade is appropriate for you. If you chose strikes at random, then bad trade.

Mark
 
Guys, thanks for the comments. Exactly what I was hoping for.

MTE, Thanks for sharing that. Point noted on time till expiration. Just out of interest, how many trades a month do you find that meet your minimum requirements?

Dagnyt, Yes I am comfortable with the RR.
While I dont see it breaking any new highs in the current market conditions I do expect it to hold steady over the next 2-3 months. Earnings were better than expected all through last year so I dont expect to see any nasty suprises there. The biggest risk I see is a massive Obama rally, or another massive leg down in the markets.
The shorts were placed just outside the S/R that I expect to hold.

Question RE risk management. Does anyone buy OTM calls/puts in the indicies to insure their ICs against a general market move?
 
Quote from maninjapan:

Question RE risk management. Does anyone buy OTM calls/puts in the indicies to insure their ICs against a general market move?
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I do. And I describe what I do in Chapter 20 of The Rookies Guide to Options.

If I believe I have too much risk, or if I have opened too many iron condor positions (for no good reason), I do buy strangles for protection. They are costly and sacrifice a significant portion of the profits, but are appropriate and they saved me a whole lot of money in 2008.

But most of the time, as with all insurance, it turns out not to be necessary. That does not mean it was a poor idea to own that insurance.

But, I buy strangles in the index I trade. you are looking to buy insurance in an index when you trade individual equities. That's not quite as good (correlation), but is better than nothing.

Mark
 
Quote from gkishot:

Reward is about equal to risk. Maximum profit of a trade has nothing to do with long-term reward.
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gkishot, could you explain yourself a bit further.
 
Quote from dagnyt:

I do. And I describe what I do in Chapter 20 of The Rookies Guide to Options.

If I believe I have too much risk, or if I have opened too many iron condor positions (for no good reason), I do buy strangles for protection. They are costly and sacrifice a significant portion of the profits, but are appropriate and they saved me a whole lot of money in 2008.

But most of the time, as with all insurance, it turns out not to be necessary. That does not mean it was a poor idea to own that insurance.

But, I buy strangles in the index I trade. you are looking to buy insurance in an index when you trade individual equities. That's not quite as good (correlation), but is better than nothing.

Mark
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Obviously it wouldnt be the best hedge in this situation. But the idea would be with multiple positions over multiple stocks then you could reduce your overall market/sector risk in the related ETFs.

A lot of my analysis results start with , provided the market doesnt tank/ take off.... So I figure I would be able to reduce at least some of that risk this way.
 
Quote from maninjapan:

Guys, thanks for the comments. Exactly what I was hoping for.

MTE, Thanks for sharing that. Point noted on time till expiration. Just out of interest, how many trades a month do you find that meet your minimum requirements?...
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1 per month per index on 3 indexes.
 
Quote from maninjapan:

gkishot, could you explain yourself a bit further.
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The greater trade's profit relative to it's loss the narrower is the profit-loss curve. It means that the losses are more often over the long run. In order to calculate reward over the long run statistical probability of event occurrence should be taken into account.
It's like slot machine in casino: The great prize is $100K. The max loss is $1. So why do we keep betting and still keep losing money? Because the probability to hit the max profit is miniscule.

In IC strategy reward is about equal to risk.
 
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