New to Iron condors

D

droid17

Hi all :)

I have been trading options for a little over 3yrs now with pretty good success. Mostly just selling covered calls and cash backed puts. Lately I dabbled into selling some credit spreads with good success.

I am interested into getting into Iron Condors. I understand how it is formed, but I need to be pointed into the right direction to figure out some particulars before I start trading them live.

For example I have heard SPY is a good index to use, what are other good underlyings to use? I also need some help on determining what strikes to use, what factors are involved in determining these strikes. How far out do you place your long options in relation to your short options? What average probability of success should I be looking for? When is the typical time or percent to close a leg? I use TOS, is there a special why to enter the whole trade in one order?

Sorry for all the questions guys, I just wanted to get it all out there so I can get pointed in the right direction. Then I am going to start firing up some paper trades on TOS for awhile before going live.

Thanks,

droid
 
I use TOS also. Just go to the trade tab. Enter the symbol of the stock whose option you want to trade. Pull up the month you want. Then right click on the price over the Ask price. A menu will come up. Highlight "Sell. Then another menu should come up Vertical, Calendar, Iron Condor. Sroll down and click on Iron Condor and then adjust the legs of the condor to reflect the options you want to trade in the IC. Then right click on that dot next to the Iron Condor box and a menu should come up and click on Confirm and Send. Or click on "place duplicate trade". Sounds complicated but simple once you do it once.

I'll let the other more experience traders answer your other questions. I do have a couple of iron condors going right now but I use individual stocks, not the indexes. GL :)
 
TOS probably has some seminars or whatnot on condors/verticals on their website. Lots of stuff all over the net, like Dan Sheridan. There's a user here named 'dagnyt', he has a website that has some good stuff on condors and other types of spreads, I don't know the url off hand, just search his name and it'll pop up.

Also, this thread 'SPX Credit Spread Trader' is a good journal of trading condors in 2005/2006 I believe, it'll take a lot of time to read but it's a good intro, good debates back and forth about debit/credit, how far otm, timing, etc.

http://www.elitetrader.com/vb/showthread.php?s=&threadid=49586
 
Quote from droid17:

Hi all :)

I have been trading options for a little over 3yrs now with pretty good success. Mostly just selling covered calls and cash backed puts. Lately I dabbled into selling some credit spreads with good success.

I am interested into getting into Iron Condors. I understand how it is formed, but I need to be pointed into the right direction to figure out some particulars before I start trading them live.

For example I have heard SPY is a good index to use, what are other good underlyings to use? I also need some help on determining what strikes to use, what factors are involved in determining these strikes. How far out do you place your long options in relation to your short options? What average probability of success should I be looking for? When is the typical time or percent to close a leg? I use TOS, is there a special why to enter the whole trade in one order?

Sorry for all the questions guys, I just wanted to get it all out there so I can get pointed in the right direction. Then I am going to start firing up some paper trades on TOS for awhile before going live.

Thanks,

droid
More...

Generally any of the broad-based indices are ok for iron condors. So you can also look at NDX, RUT and others (and their respective ETFs if you want to trade smaller size).

Determining which strikes to use is the million dollar question, so to speak. There is no single correct rule for this. It's up to you to find a way to determine which strikes to use.

The difference between long and short is again up to you, there is no rule, so choose whatever you are comfortable with. Personally, I like to use 10-point difference for SPX and RUT, and 25 points for NDX.

The same goes for probability and percent/time to close. There is no rule, you have to develop your own strategy.

For entering the iron condor as a single spread order you can either right-click on an option and then choose iron condor from the drop-down menu or (this is the way I prefer to use) hold down "shift" and then click on the each individual option's bid/ask (depending on whether you want to sell/buy) you want to use and an iron condor order will be created.

For example, say you want to sell a 120/125/130/135 iron condor. You open up the option chain, hold down "shift" and then click on ask price of the 120 put, bid price of the 125 put, bid price of the 130 call, and ask price of the 135 call.
 
Nice! Thanks all :) I have some good places to start looking. I just recently read that one why to get a rough idea of the short strikes to select is to look at the deltas of those options. The author said if you add them and subtract them from 1.00 then that is roughly the percent the underlying price will fall between the two strikes. So say you want a 80% chance you should look for two shorts that have .10 delta. Any thoughts on this??? Oh one more. So I am assuming even though put the trade into TOS as an Iron Condor, you are still charged 4 commissions for each part?

Thanks again,

droid
 
"For example, say you want to sell a 120/125/130/135 iron condor. You open up the option chain, hold down "shift" and then click on ask price of the 120 put, bid price of the 125 put, bid price of the 130 call, and ask price of the 135 call."

Isn't this buying the IC?
 
Hi wooldog,

Thanks for the info on TOS. I running through some paper trades now to get a good feel of how it works. So what stocks do you use? I have read indexes are normally better bc the volume is high and the open interest allows for easier\better fills.
 
Quote from droid17:

Hi wooldog,

Thanks for the info on TOS. I running through some paper trades now to get a good feel of how it works. So what stocks do you use? I have read indexes are normally better bc the volume is high and the open interest allows for easier\better fills.
More...

droid17, I'm sure indexes are a lot easier to fill. But there are many stocks that have a tight b-a spread. I have had trouble filling my orders and just let them expire if I can't get the price I want--w/in reason. One IC I couldn't get into would've expired today and been very profitable if it had filled. :(

Currently, I have Iron Condors on GM and AKAM. I had trouble getting those filled, but they gave me a risk, reward and probability profile that I couldn't pass up and I gave up a little on the fill. The risk reward was still good even giving up a little. I always look at the max loss and ask is that a loss I'm comfortable taking and adjust the number of contracts accordingly. So far, so good. But if everything goes wrong, I'm still very comfortable taking the loss.

With TOS you should try running the spread hacker. I run scans for potential IC spreads constantly, based on Days to Exp, minimum mark (for IC this will be the credit), PL Margin (try to get it above 65, but experiment with it), delta (I try to make it delta neutral), and prob of profit (fool around with it but my last setting was 45%
 
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