need help thinking through lifespan of iron condor

...And a little note on my 'revenue-neutral':
Skews are skewed, and thin markets are thin, and sometimes 'reality' bites.

("Well, that's just *great*, Tom -- but what does that have to do with....")
I'm getting there.

If you price your ITM March16(?) put spreads in XLE right now, you'll likely find them a scootch higher in the short delta (CL, at least, has risen a bit, and time has moved on...) -- let's say it's -0.90. If you check the OTM call at that strike (70.5??), you'll find it to be almost exactly 1.0 - 0.90 = 0.10.

("Thanks for the reminder. But 'so what'?")
Well, here's the thing: if you're looking at a 70.5/69.5 spread, if it was 87¢ earlier, it's easily 90¢ now -- [the assumption being that the rising market was beaten by the ongoing time burn, and loss of vol from 20+ to the current 17-ish VIX, or,

[position delta {gain}] < [position theta {loss}+ position vega {loss}]

("Okay. And...?")
If you go out in time, and say, down in strike, and find that instead of 90¢, you only get 80¢ for a ITM 68/69 in XLE. The sale price *diminishes* as you inject more time value into the long position. ("Ouch!") BUT!!! What happens to an available CALL spread -- that is OTM??? Ah! As you go out in time, that value increases.

And here's the thing: As the sum of the short deltas of a put spread and a call spread at the same strike should be |1.0|, so to should the sum of market premium for a same-width call spread and put spread at/near the same strike, equal the width of the spread. Thus, if you get "only" 80¢ for selling the already ITM $1-wide put spread, you should expect to get about 20¢ for the mirror/matching OTM call spread.

("Isn't that, like, "Options 101"??)
Sure, but 1) I was busy 2) I rarely deal with ITM, and question everything that comes to my mind, because your intuition, your instinct, your expectations can all be 180° wrong and you won't realize it until The Cosmos wakes you up in the middle of the night to poke you in the brain and ask, innocently, "Really? What you were thinking about _______? Really?" So, I try to avoid those Conversations-with-The-Cosmos....

And perhaps most important, 3) It ain't always so. The models work this way; most of the time, the markets work this way. But when they don't: "Ugh." For example: if you try this in the SPX right now, you'll likely find it works fine up top, but an ITM call spread?? Uh-ohhhh.
Let's see:
for Feb28, a $5 wide 2650/2655 call spread has a +0.913 δ, and a mid of $4.75
so, for parity, we'd expect the short put to carry a -0.087 δ, and a mid of $0.25
HA! That's what it is!!! It adds up to $5 for the spreads and |1.00| for the deltas. Huh! Last night, I saw $4.70 adding the call and put premium; I didn't check the deltas.

Well, something to think about for y'alls......."The market *may* or *may*not* behave as we expect."
 
tommcginnis said:
...And a little note on my 'revenue-neutral':
Skews are skewed, and thin markets are thin, and sometimes 'reality' bites.

("Well, that's just *great*, Tom -- but what does that have to do with....")
I'm getting there.

If you price your ITM March16(?) put spreads in XLE right now, you'll likely find them a scootch higher in the short delta (CL, at least, has risen a bit, and time has moved on...) -- let's say it's -0.90. If you check the OTM call at that strike (70.5??), you'll find it to be almost exactly 1.0 - 0.90 = 0.10.

("Thanks for the reminder. But 'so what'?")
Well, here's the thing: if you're looking at a 70.5/69.5 spread, if it was 87¢ earlier, it's easily 90¢ now -- [the assumption being that the rising market was beaten by the ongoing time burn, and loss of vol from 20+ to the current 17-ish VIX, or,

<<I'm finding $0.77 for the March16 69.5/70.5, max loss 0.22 (if only this were viable :)

[position delta {gain}] < [position theta {loss}+ position vega {loss}]

("Okay. And...?")
If you go out in time, and say, down in strike, and find that instead of 90¢, you only get 80¢ for a ITM 68/69 in XLE. The sale price *diminishes* as you inject more time value into the long position. ("Ouch!") BUT!!! What happens to an available CALL spread -- that is OTM??? Ah! As you go out in time, that value increases.

<<I understand. so, this backs up the prospect of rolling the OTM call spread down and out in time, due to the inverse relationship in price to the (68/69) scenario above. However when I go out one week, and move my call strikes -4 to 79/78, I certainly don't get 20 cents, I get 1 cent., with max loss of 99 bucks. I know this is probably a product of me not following you, and believe me I am trying. In a new short call vertical, for the same Mar16 contracts I am having to bring my call strikes down all the way to where my puts were to even begin to get a credit. This improves if I add a week, but not a lot.


And here's the thing: As the sum of the short deltas of a put spread and a call spread at the same strike should be |1.0|, so to should the sum of market premium for a same-width call spread and put spread at/near the same strike, equal the width of the spread. Thus, if you get "only" 80¢ for selling the already ITM $1-wide put spread, you should expect to get about 20¢ for the mirror/matching OTM call spread.

("Isn't that, like, "Options 101"??)
Sure, but 1) I was busy 2) I rarely deal with ITM, and question everything that comes to my mind, because your intuition, your instinct, your expectations can all be 180° wrong and you won't realize it until The Cosmos wakes you up in the middle of the night to poke you in the brain and ask, innocently, "Really? What you were thinking about _______? Really?" So, I try to avoid those Conversations-with-The-Cosmos....

And perhaps most important, 3) It ain't always so. The models work this way; most of the time, the markets work this way. But when they don't: "Ugh." For example: if you try this in the SPX right now, you'll likely find it works fine up top, but an ITM call spread?? Uh-ohhhh.
Let's see:
for Feb28, a $5 wide 2650/2655 call spread has a +0.913 δ, and a mid of $4.75
so, for parity, we'd expect the short put to carry a -0.087 δ, and a mid of $0.25
HA! That's what it is!!! It adds up to $5 for the spreads and |1.00| for the deltas. Huh! Last night, I saw $4.70 adding the call and put premium; I didn't check the deltas.

Well, something to think about for y'alls......."The market *may* or *may*not* behave as we expect."
More...
 
kevagonia said:
At risk of getting beaten up here, I am reaching out for advice on managing options from cradle to grave: new options seller, small account (<5k), using this to learn and earn some income. After researching, I feel that managing a portfolio of defined risk options is a good possible source of ongoing income and... maybe ongoing headaches if I don't continue to work hard and learn more.

XLE (energy sector SPRD ETF) iron condor (march 16 exp) sold several weeks ago before recent volatility in markets.

the wings are 69.5/70.5 puts and 82,83 calls

currently trading at 66.56 with 22 DTE.

I am considering just watching the thing recover, but out of all the options I've researched for days now, I can not find any real data as to when to actually adjust.

1. wait: I like this idea. I made this choice for a reason and although it might have been a bad choice, letting my underdog run its race seems rational.
2. rolling up the untested side to a different strike/expiration, ironfly, etc. : certainly the ironfly option seems to offer a very narrow chance of success and I have the impression it might be more useful when underlying is trading closer to my put spread...
3. rolling out further when the time comes to remain in contention: OK... I can wait and try that, but when is enough enough?

So if my impression is correct it is still early and I have time to take a watchful waiting approach. Thanks for any helpful comments. Any more data needed?

-Kevin
More...


You are asking the right question but much too late. If you want to make a career out of selling Iron Condors for income and capital growth it can be done. But now you are calling your insurance agent to try to buy fire insurance while the fire department is already at your home trying to put out the fire.

You must learn how to defend the positions that BEGIN to get in trouble before they have already moved past the point of maximum loss. One way to defend a trade getting into trouble is to buy a debit spread on the side in trouble. In this case before the price dropped to 71.5 should buy a 71.5 put and sell another 70.5 put. This then turns the troubled side into a butterfly. +71.5 -two 70.5 and +69.5. This price you paid for the debit spread minus your credit you originally received is your new maximum loss.

This also has the benefit of potentially increasing the profit on the trade because it the price did close at 70.5 you would have a max profit on your original IC and a max profit on the defensively placed debit spread.
 
Illini Trader said:
You are asking the right question but much too late. If you want to make a career out of selling Iron Condors for income and capital growth it can be done. But now you are calling your insurance agent to try to buy fire insurance while the fire department is already at your home trying to put out the fire.

You must learn how to defend the positions that BEGIN to get in trouble before they have already moved past the point of maximum loss. One way to defend a trade getting into trouble is to buy a debit spread on the side in trouble. In this case before the price dropped to 71.5 should buy a 71.5 put and sell another 70.5 put. This then turns the troubled side into a butterfly. +71.5 -two 70.5 and +69.5. This price you paid for the debit spread minus your credit you originally received is your new maximum loss.

This also has the benefit of potentially increasing the profit on the trade because it the price did close at 70.5 you would have a max profit on your original IC and a max profit on the defensively placed debit spread.
More...

Illini, thanks for the post:

In retrospect, this particular contract should have been monitored more closely. I felt that it collapsed quickly with the market, but really there were about 6 days over which it could have possibly been managed. I have learned to chart my expectations and set alarms since then. To be more diligent with the positions I've made. I've set up folders in trading view for each expiry in which I have charts showing my tolerances with notes. I have set alarms for <> prices at which I feel like I should intervene. I appreciate the improved explanation of how to use a butterfly in this regard. The articles i was reading previously led me to believe I should roll the original position by moving the long/short calls in towards the original price to make a butterfly but the prices were not adding up. Plus I was trying to figure all this out after the fact when I was looking at data based on a scenario that had already occurred. I will catch these problems earlier next time and work on my strategy. This was the first IC I had sold and in fact the first option I had sold. I'm not sure I'll ever make a career out of it, but I certainly want to become proficient.

Again, thanks

-Kevin
 
Windlesham1 said:
has it ever occured to anyone to buy options,not just as part of a credit spread......
More...

Sure but buying options is the exact opposite strategy. That is a directional play and you need the underlying to move past your stirke price by a sufficient amount to cover your cost and commission just to break even.

Credit spreads are trying to collect the premiums paid by the option buyers with the expectation that the price with stay within the range of the call and put sell strikes in the Iron Condor for a max profit of the amount received upon putting on the trade.
 
Illini Trader said:
You are asking the right question but much too late. If you want to make a career out of selling Iron Condors for income and capital growth it can be done. But now you are calling your insurance agent to try to buy fire insurance while the fire department is already at your home trying to put out the fire.

You must learn how to defend the positions that BEGIN to get in trouble before they have already moved past the point of maximum loss. One way to defend a trade getting into trouble is to buy a debit spread on the side in trouble. In this case before the price dropped to 71.5 should buy a 71.5 put and sell another 70.5 put. This then turns the troubled side into a butterfly. +71.5 -two 70.5 and +69.5. This price you paid for the debit spread minus your credit you originally received is your new maximum loss.

This also has the benefit of potentially increasing the profit on the trade because it the price did close at 70.5 you would have a max profit on your original IC and a max profit on the defensively placed debit spread.
More...

if one wanted to make a career out of selling iron condors, would one butter the bread thinly, spreading their many small sales over a diverse set of high IV underlying, or would one invoke a laddering strategy, sticking to one or a few underlying? I am aware both are done, I am just curious of your opinions. Also "both" is a choice. :)

Kev
 
Another consideration is the volatility of the underlying as well as the market. Iron condors are more suited for something closer to granny stocks :) than volatile issues or volatile times. Perhaps you learned that from your position? Of course the granny payoff is lower but there should be some balance b/t the two.
 
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