need help thinking through lifespan of iron condor

[tommcginnis]

so I'm not an analyst or I would understand the sector more. The IV was high and I did not anticipate that all the high-IV underlying I had been choosing would explode with the market correction that occurred in January... however... I feel like it should recover at least partially and today has done so by nearly one point. I would like to think that more than 20 days is enough to wait this one out. I learn by watching people who know more than me though, and I feel like since I have chosen defined risk strategies as a way to learn options trading then I should have some tools in my toolbox for when things don't go my way. The "when" for me was just as important as the "what to do". There appears to be a non-interventionist school of thought and an "adjustment" school as well.

Thanks.

-Kevin

If you're not familiar with the underlying, "Yipes!"
If you've already lost 95% of what you're going to lose, then opening a 68/67//70/71 IC {as close as possible, to minimize ITM *purchase* of time value; but as close to revenue-neutral as you can manage} might represent a viable reward-to-risk trade. IT DEPENDS ON WHAT ELSE you for capital allocation choices. "Opportunity cost!!"

One thing NOT to do: quoting Ghostbusters, "Don't cross the streams!" Don't sell a 68/67 put spread AND a (for example) 66/67 call spread: if the market finishes at $67, you're in the money on both sides. Ewww!

STEP #1!! Become an expert in the XLE, RIGHT NOW. TODAY. Before Close.
You are *already* an owner (of sorts) -- time to back into ownership responsibilities. But do NOT compound things by further trades here until you have a handle on the whos, whats and whys of XLEdom.

 

[kevagonia]

If you're not familiar with the underlying, "Yipes!"
If you've already lost 95% of what you're going to lose, then opening a 68/67//70/71 IC {as close as possible, to minimize ITM *purchase* of time value; but as close to revenue-neutral as you can manage} might represent a viable reward-to-risk trade. IT DEPENDS ON WHAT ELSE you for capital allocation choices. "Opportunity cost!!"

One thing NOT to do: quoting Ghostbusters, "Don't cross the streams!" Don't sell a 68/67 put spread AND a (for example) 66/67 call spread: if the market finishes at $67, you're in the money on both sides. Ewww!

STEP #1!! Become an expert in the XLE, RIGHT NOW. TODAY. Before Close.
You are *already* an owner (of sorts) -- time to back into ownership responsibilities. But do NOT compound things by further trades here until you have a handle on the whos, whats and whys of XLEdom.

OK, I think I understand. So a lot of the options I have seem to be not so much about running from the position I already have, but about incrementally mitigating the loss with smaller "wins" in the right direction.
I assume taking the approach of the "iron butterfly" is more of "crossing the streams" based on what I am hearing.

Thanks again

-Kevin

 

[tommcginnis]

I assume taking the approach of the "iron butterfly" is more of "crossing the streams" based on what I am hearing.

I would agree with that. Although, a little work with the option chain might be instructive -- and if this were throwaway money, it'd be fun to just watch[!]..... but if this is 'real money'?? Nah. Not worth the bile.

 

[spindr0]

If an Iron Condor started to move against me AND I chose to defend it, I'd roll the untested side in, bringing in some additional premium. That would occur before the underlying breached the other short strike. In your example, if placed at the mid point ($76), when XLE dropped to say $72, I'd roll the call spread down 4 points. On paper, that sounds good but isn't always viable since there's insufficient time decay, IV may have changed, B/A spreads may be wide, and your commission schedule might stink.

 

[iprome]

I personally treat the put spread and the call spread differently.

I feel that the tests or breaches on the put spread is usually more forgiving than the call side, as the IV expansions (combined with more severe put skews) that usually come with price drops often help buffer the losses of short put spreads, at least for quite amount of time. I am often reluctant to roll down the untested call spread just to neutralize Delta, for the fear of opportunity costs; I default to making no adjustments in this scenario, unless I have a conviction on further price movements.

The breaches on the call side, however, usually look less forgiving to me, as the IV contractions that usually come with price hikes often exacerbate the losses of the short call spread (by bring the current PnL curve closer to the expiry PnL curve when my position is on the loss zone). In this scenario, I default to rolling up my put spread (up to an Iron Butterfly at most) in a timely manner so as to neutralize Delta and put Theta in a more heathy range, unless I have a conviction that the price will come down very soon.

For the very same reason, I prefer selling Broken Wing Condors with little upside risks than equal-wing Iron Condors. And if the call premium is not rich enough, I would rather not sell the call spread at all...

I don't like rolling the tested side out in time, because even if the tested side's Delta is dampened after roll, (1) the loss of the tested side is realized, (2) it is almost impossible to roll for a credit when tested, and (3) it is too cumbersome for me to keep track of the total credits received across different expiries and use them to calculate the effective breakeven of my open positions. For IC, I would rathe settle the game within one expiry, be it a win or a loss, and look for redeploy opportunities.

 

[kevagonia]

I would agree with that. Although, a little work with the option chain might be instructive -- and if this were throwaway money, it'd be fun to just watch[!]..... but if this is 'real money'?? Nah. Not worth the bile.

kind of like touching a wrench to both poles of a car battery?

 

[kevagonia]

If an Iron Condor started to move against me AND I chose to defend it, I'd roll the untested side in, bringing in some additional premium. That would occur before the underlying breached the other short strike. In your example, if placed at the mid point ($76), when XLE dropped to say $72, I'd roll the call spread down 4 points. On paper, that sounds good but isn't always viable since there's insufficient time decay, IV may have changed, B/A spreads may be wide, and your commission schedule might stink.

I've found that rolling in the untested side and hold to expiry, which is the right thing to do based on my own research, seems to be a net loser for the reasons you've mentioned. Is this because I simply waited too long, or rather was subject to a downward phase shift in price due to the market drop in Jan? May ave to let this ride...

Again, I certainly appreciate your input. It is very valuable to me.

-Kevin

 

[kevagonia]

I personally treat the put spread and the call spread differently.

I feel that the tests or breaches on the put spread is usually more forgiving than the call side, as the IV expansions (combined with more severe put skews) that usually come with price drops often help buffer the losses of short put spreads, at least for quite amount of time. I am often reluctant to roll down the untested call spread just to neutralize Delta, for the fear of opportunity costs; I default to making no adjustments in this scenario, unless I have a conviction on further price movements.

The breaches on the call side, however, usually look less forgiving to me, as the IV contractions that usually come with price hikes often exacerbate the losses of the short call spread (by bring the current PnL curve closer to the expiry PnL curve when my position is on the loss zone). In this scenario, I default to rolling up my put spread (up to an Iron Butterfly at most) in a timely manner so as to neutralize Delta and put Theta in a more heathy range, unless I have a conviction that the price will come down very soon.

For the very same reason, I prefer selling Broken Wing Condors with little upside risks than equal-wing Iron Condors. And if the call premium is not rich enough, I would rather not sell the call spread at all...

I don't like rolling the tested side out in time, because even if the tested side's Delta is dampened after roll, (1) the loss of the tested side is realized, (2) it is almost impossible to roll for a credit when tested, and (3) it is too cumbersome for me to keep track of the total credits received across different expiries and use them to calculate the effective breakeven of my open positions. For IC, I would rathe settle the game within one expiry, be it a win or a loss, and look for redeploy opportunities.

I have spent the last night learning more about broken wing condors, big boy iron condors, chicken iron condors (seems like playing chicken with a price change to me)... all interesting approaches. This position is likely to lose me a bit of money and provide me with a lesson in the meantime. All other approaches that don't involve rolling out to a later expiry seem to be net losers. I'll report back on the outcome. Most of the other positions that I hold from pre-market drop (January, early Feb) seem to be recovering. DIA gapped up in between my short strikes today, EWW is remarkably resilient and UPS... well...

-Kevin

 

[spindr0]

Traders don't defend, especially the rock stars here who never lose ;->)

Spreads are limited risk/reward critters. The short answer is that you win some and you lose some and the rest are rained out. That's just the way it is. The reason for the position (before and after the drop) has a lot to do with what you do subsequently.

I tend to sell spreads on positions that I'm willing to own, long or short. Let's KIS(no S) and consider a bullish put vertical (which is the tested side of your IC). If XYZ crashes and is below the long strike, I'm going to attempt to lower my cost. I'll roll the long puts down, perhaps increasing their number in order to improve my long delta a bit. I'll continue to repeat this if it breaches the new long strike. At some point, I may also sell naked calls against the ITM short put position. It's a pseudo collar covered up to the strike.

All of this is a balancing act and I'm just trying to offset some of the losses of my ill timed purchase. It's not a winning game, rather more of a lose less approach for something I want to and I am about to own. If I can lower cost basis during the drop, it takes less of a bounce to break even. This doesn't apply to you because you have a limited account size and you're looking to scalp some gains. Just explaining that proactive management may help if that bounce ever comes :->)

 

[tommcginnis]

I personally treat the put spread and the call spread differently.

I feel that the tests or breaches on the put spread is usually more forgiving than the call side, as the IV expansions (combined with more severe put skews) that usually come with price drops often help buffer the losses of short put spreads, at least for quite amount of time. I am often reluctant to roll down the untested call spread just to neutralize Delta, for the fear of opportunity costs; I default to making no adjustments in this scenario, unless I have a conviction on further price movements.

The breaches on the call side, however, usually look less forgiving to me, as the IV contractions that usually come with price hikes often exacerbate the losses of the short call spread (by bring the current PnL curve closer to the expiry PnL curve when my position is on the loss zone). In this scenario, I default to rolling up my put spread (up to an Iron Butterfly at most) in a timely manner so as to neutralize Delta and put Theta in a more heathy range, unless I have a conviction that the price will come down very soon.

For the very same reason, I prefer selling Broken Wing Condors with little upside risks than equal-wing Iron Condors. And if the call premium is not rich enough, I would rather not sell the call spread at all...

I don't like rolling the tested side out in time, because even if the tested side's Delta is dampened after roll, (1) the loss of the tested side is realized, (2) it is almost impossible to roll for a credit when tested, and (3) it is too cumbersome for me to keep track of the total credits received across different expiries and use them to calculate the effective breakeven of my open positions. For IC, I would rathe settle the game within one expiry, be it a win or a loss, and look for redeploy opportunities.

Really good post -- deserves something beyond a "Like."