Naked Iron Condor - can this strategy work?

benysl, your P&L figures would be better if you balanced the deltas when the future is triggered between the future and the short options. That way you wouldn't have to wait until expiration to net out.

Speaking of which, why are you selling October instead of September? The odds of both Sep shorts being touched is less than 1%. The odds of both Octs being touched at 14% vol is 15%.
 
Quote from mysticman:

benysl, your P&L figures would be better if you balanced the deltas when the future is triggered between the future and the short options. That way you wouldn't have to wait until expiration to net out.

Speaking of which, why are you selling October instead of September? The odds of both Sep shorts being touched is less than 1%. The odds of both Octs being touched at 14% vol is 15%.
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sept premium for 1350 call is 0.30 and premium for 1270 put is 3.00.
There wasn't much left of course the chances of it winning is higher.

For oct contracts. I do not have to hold till expiry as long as it is within the range and I can see a profit by end of september I can square off the position and go for the november selling and repeat again and again. Of course I will be hit 1 of the month.

I am currently doing a full iron condor selling 1350 call buying 1355 call selling 1270 put buying 1265 put.
I am thinking of replacing the purchase with GTC futures order. So like to hear some comments first.

you guys are great, thank you
 
Quote from benysl:

I am currently doing a full iron condor selling 1350 call buying 1355 call selling 1270 put buying 1265 put.
I am thinking of replacing the purchase with GTC futures order. So like to hear some comments first.
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There is non-systemic risk. Think outside of the box; what if your GTC order for some reason does not execute? This could be a technology failure, exchange failure, or anything. Calculate your loss assuming a 10-sigma event, and then determine if you will survive to trade another day. If the answer is yes, it sounds like you can manage the risk. Personally, I prefer a predefined worst-case.

-segv
 
Quote from riskarb:
under 6-sigmas you'll lose a bit less selling a one lot, 20d per side strangle over a one-lot atm straddle. But we all know there is more to it than that.
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He's running 1 sigma into October so I guess that falls into the range.

Quote from momoneythansens:
The collar is a synthetic vertical that has been legged into at well below above fair value. There's no need for the futures position, just buy the appropriate option. I see no benefit to converting to this vertical, synthetically or otherwise.
If just futures is used, then there is very real whipsaw risk potentially > naked option risk.
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Not sure I know what you mean here by "well below above fair value" and don't know where you get that part about legging in. I assume you are referring to buying the future first and then buying the option, but benysl said he would buy the option "immediately" upon buying the future. If the option market is open then these would be done at the same time and at fair value. However much of the time the option market may not be open so if the buy stop for the future is triggered overnight, he would have to wait to buy the option. See my suggestion below for avoiding this problem.

You do need the futures position if you want the collar. Just buying the option will not give you a collar, synthetic or otherwise. Looking at the call side for example, just buying the 1240 put is not enough. If you are thinking about establishing the short vertical synthetic collar, you would first have to buy the 1250 call back, then sell the 1250 put, and then buy the 1240 put. It would be much easier and cheaper to buy the future and the 1240 put. If outside of regular trading hours then you couldn't do anything with the options anyway, so the idea of a futures buy stop is good, simple, and effective almost 24/7. And we don't want to be putting in stops for options, right? The benefit of converting to the collar would be to cap the risk. Pretty straightforward.

Previously I suggested buying the futures at a ratio to balance the deltas. That would do 3 things: it would remove most of the risk (sort of); it may make unnecessary going to the full collar; and it would remove the execution time risk between the overnight execution of the future and the opening of the options market.
 
Quote from mysticman:
You do need the futures position if you want the collar. Just buying the option will not give you a collar, synthetic or otherwise. Looking at the call side for example, just buying the 1240 put is not enough. If you are thinking about establishing the short vertical synthetic collar, you would first have to buy the 1250 call back, then sell the 1250 put, and then buy the 1240 put. It would be much easier and cheaper to buy the future and the 1240 put. If outside of regular trading hours then you couldn't do anything with the options anyway, so the idea of a futures buy stop is good, simple, and effective almost 24/7. And we don't want to be putting in stops for options, right? The benefit of converting to the collar would be to cap the risk. Pretty straightforward.
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hi Mysticman,

that is a good one. I never thought of that. Good thinking will do some thinking on that also and see what I can come up with. I am relatively new to options market. I have futures trading experience but not on options
 
Quote from mysticman:

Not sure I know what you mean here by "well below above fair value" and don't know where you get that part about legging in. I assume you are referring to buying the future first and then buying the option, but benysl said he would buy the option "immediately" upon buying the future. If the option market is open then these would be done at the same time and at fair value. However much of the time the option market may not be open so if the buy stop for the future is triggered overnight, he would have to wait to buy the option. See my suggestion below for avoiding this problem.

You do need the futures position if you want the collar. Just buying the option will not give you a collar, synthetic or otherwise. Looking at the call side for example, just buying the 1240 put is not enough. If you are thinking about establishing the short vertical synthetic collar, you would first have to buy the 1250 call back, then sell the 1250 put, and then buy the 1240 put. It would be much easier and cheaper to buy the future and the 1240 put. If outside of regular trading hours then you couldn't do anything with the options anyway, so the idea of a futures buy stop is good, simple, and effective almost 24/7. And we don't want to be putting in stops for options, right? The benefit of converting to the collar would be to cap the risk. Pretty straightforward.
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My apologies, I assumed you were fully up to speed on synthetics hence the brevity in my earlier post.

Synthetics refresher:

Long futures + long PUT = long CALL OR
Long futures + short CALL = short PUT

As per your example, looking at the CALL side, instead of going long futures and long 1240 PUT, you can just buy the 1240 CALL. The futures position is not needed.

Collar:

Short 1250 CALL + long futures + long 1240 PUT

Depending on which substitution you wish to do, it is synthetically equivalent to:

Short 1250 CALL + long 1240 CALL (ITM Bull CALL vertical)

or even:

Long 1240 PUT + short 1250 PUT (OTM Bull PUT vertical)

i.e. the collar is a synthetic 1240/1250 bull vertical.

However, we already have the short 1250 CALL so let's stick with the bull CALL vertical variety.

What do I mean by legging in at greater than fair value?

We own the short CALL which is now showing a loss. We then buy the 1240 CALL (even if it is done synthetically with futures + PUT). Hence we have legged into the bull CALL vertical and own it for a price larger than if we were to buy the vertical outright at this juncture i.e. we have paid greater than "fair value" (read: market prices) for it. The difference between current market prices for the vertical and how much we paid for it is equal to the marked loss on the already owned short CALL.

MoMoney.
 
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